No place like home: investing in residential property

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12 Mar 2013

Institutional investment has long been the life-blood of the UK’s commercial property sector. But despite our ongoing obsession with owning our own homes, the exposure of pension funds and insurance companies to residential property is negligible. Just 1% of the UK’s housing stock is owned by institutions, compared to between 10% and 15% in most European cities.

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Institutional investment has long been the life-blood of the UK’s commercial property sector. But despite our ongoing obsession with owning our own homes, the exposure of pension funds and insurance companies to residential property is negligible. Just 1% of the UK’s housing stock is owned by institutions, compared to between 10% and 15% in most European cities.

Safe as houses

Islington Councillor and pensions subcommittee chairman, Richard Greening explains the reasons behind the fund’s £20m investment in residential property.

Why did you decide to invest £20m in residential property?

It has been my view for some time that residential property was an investment class we should be invested in and we had been looking for a suitable investment vehicle to do it with. The evidence is that residential property is strong in terms of both the revenue returns and capital growth. If you compare the housing market to equities over the last 10 years it is a no-brainer; the housing market did correct in 2008/9 but has shown strong growth the rest of the time. It strikes me as mad to ignore this sector but the lack of products has been a problem. As a council we are very focused on the lack of affordable housing in Islington. We are building 2,000 new homes over this four-year term so it does make sense for our pension fund to be investing in housing.

Were there any potential concerns before making the investment?

The negatives are things like the involvement in housing management and repairs. It is also perceived to be not so liquid, but for pension funds liquidity is less of an issue because we take a longterm view. If we can’t get our money back immediately it doesn’t matter, because we are investing for 20, 30, 40 years. We also have investment in commercial property which was initiated about eight years ago, but we have moved into residential because we see that sector as a particular opportunity.

Will you increase the fund’s allocation to property in the future?

We will be looking at the strategy when we have the next valuation. I think we should increase the investment in residential property but we want to make sure we are happy with this initial investment.

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