Institutional investment in residential property - especially student accommodation - has almost tripled to £2.2 billion in the past 12 months, according to a leading firm of property lawyers.
Much of the smart investment money has switched from equities and commodities to property due to market volatility, says City law firm Wedlake Bell.
Banks, pension funds and other institutional investors have put their cash in to student halls, explained Jeremy Raj, the firm’s head of residential property.
“There has been a startling jump in purchases of UK residential property by institutional investors,” he said. “Institutions are being attracted to residential property because of improving market fundamentals, including high tenant demand, high rents and a supply shortage that shows no immediate signs of abating.
“One area in which we have seen strong investment has been the student accommodation market both from UK and overseas institutions.”
The firm expects the letting market to stay resilient in 2012 because any oversupply has already been soaked up by investors, while demand from students and other prospective tenants is still rising.
“One effect of the credit crunch was to freeze the new build pipeline, meaning the current shortage of properties on the market is unlikely to abate in the near term,” said Raj. “Unsold housing stock from the new build boom prior to the credit crunch has now been cleared up, making the current shortage of quality rented accommodation more acute.”
“In addition, it seems unlikely that any public sector led affordable homes initiative will meet the shortage of affordable homes. The government’s proposal to extend the ‘right-to-buy’ scheme might actually mean that more affordable housing will be taken out of the public sector.”
Raj added that the acceleration of purchases by financial institutions reverses years of low investment by them in UK residential property because high costs of managing a residential portfolio, made up of many small properties, cut too deeply into returns