The continued uncertainty over the Brexit talks in the UK and the fluctuating pound sterling has clouded the investment horizon of investors, particularly “private wealth”, namely high-networth individuals and family offices, says Peter Young, CEO and co-founder of Singapore-based boutique real estate fund manager Q Investment Partners (QIP).
In the middle of this year, QIP launched its maiden project under its develop-operate-sell model: a 284-bed, purpose-built student accommodation in Sheffield, the UK. Roadshows in Hong Kong and Singapore in June raised £9 million ($16 million) in equity for the development. The minimum entry level for investors was £350,000, with a four- to five-year investment horizon. Investors can expect a 16% annual non-compounding return, net of fees, according to Young. The fund has closed, and construction of the project, which is expected to take about two years, has begun.
With the protracted uncertainty over the Brexit talks, some investors who had purchased residential properties five to 10 years ago may reap gains upon selling these assets. However, they are unable to realise their investment as the pound has weakened, and doing so will mean incurring a net loss upon currency conversion.
Lounge area in a student housing development designed by GHA (Credit: Paul Miller)
New option
Recognising the predicament such investors are in, QIP is offering them an option to invest in a shorter-term, fixed-income product for its second student accommodation project in 1Q2018. While investors can still opt for the longer-term direct investment into the develop-operate-sell model, there is a second option for those with a shorter time horizon. According to Young, the entry level is also lower, from £150,000, and an annual coupon rate of about 8% will be paid in pounds.
This second student housing project is located in Nottingham. It comprises 350 beds and has an estimated gross development value of £35 million. “The fixed-income product is tailored for investors who are still holding on to the pound sterling and looking at a shorter investment time frame with stable returns,” says Young.
Glenn Howells Architects (GHA), famous for its design of the 27-storey Urbanest student housing tower at King’s Cross and the student housing at Leamington Spa old town, is the appointed architect for the student accommodation project in Nottingham.
On-site restaurant at a student housing development designed by GHA (Credit: Paul Miller)
Potential in build-to-rent market
Besides purpose-built student accommodation, QIP sees potential in the build-to-rent sector. According to the British Property Federation’s latest figures, there are 95,918 build-to-rent units either completed or planned across the UK, including 17,001 completed and 24,012 under construction, and a further 54,905 with planning permission. Of the 95,918 build-to-rent units, 54,978 (57%) are in London, and 40,940 outside of London. BPF is projecting that the build-to-rent market could drive property investment to £70 billion by 2022 and supply is projected to hit 240,000 units by 2030.
According to QIP’s Young, the firm will look at the build-to-rent market in London and focus on projects with gross development value of up to £50 million. It will also adopt the same develop-operate-sell model for its build-to-rent projects as that for its purpose-built student accommodation projects.
“Institutional investors are still investing in the UK real estate market as it’s still perceived as an attractive asset class over the long term with the added benefit of the weaker pound,” notes Young. “High-net-worth investors behave differently. As long as visibility is unclear, they are less willing to make a longterm bet on the market.” As a result, QIP had to change its fundraising strategy in its next project in response to the way these individual investors look at returns.
With the Singapore property market, especially the residential sector, recovering, some of the high-net-worth investors have also started to relook at investing in the local market. “I think it’s starting to happen,” says Young. “The en bloc sales have excited everyone, and the Singapore market is looking more positive. However, that hasn’t affected investor interest in the UK market.”
Outdoor communal space at a student housing development designed by GHA (Credit: Paul Miller)
Young: The fixed-income product is tailored for investors who are still holding on to the pound sterling and looking at a shorter investment time frame with stable returns (Credit: Albert Chua/The Edge Singapore)
This article, written by Cecilia Chow, appeared in EdgeProp Pullout, Issue 809 (Dec 11, 2017)