The Investors in Housing Fund will target the residential property sector in London and the South East. It is the latest venture from Mill Group, a specialist property investment company with close to £1 billion of assets currently under management. The Fund will provide investors with indexed income returns and capital gains from UK housing, a proven asset class that has outperformed commercial property, equities and gilts over the past 30 years, according to the company.
The inability to finance the high deposit now required is a key barrier to entry for mainstream buyers. Co-investment is a new model for home ownership where the buyer acquires a share of between 25 and 50% of the property with the Fund buying the rest. This overcomes the barrier by enabling the buyer to use the deposit cash that they can access to provide the Loan to Value required by mortgage lenders on the share they buy. They will also be paying a continuing investment fee on the part that they do not own. The owner can also increase the percentage of the property owned at any time.
David Toplas, CEO of Mill Group, said: "It has been well-documented that there is a lot of pent-up demand resulting from the credit crunch and that this is a key factor in the lack of movement in the mainstream market. Few people can get the right level of funding. The Investors in Housing Fund will provide a very simple solution to this stalemate. It’s a win for hard pressed buyers and it is a win for institutions, who can now invest in residential property with a superior investment model without the previous associated issues. We project a running yield of 6% pa as part of a projected return of 15% IRR over a five year period on an ungeared basis after all fees and all at a low risk level."
For institutions, the Investors in Housing Fund and its co-investment model removes much of the risk associated with the residential sector: There should be no void periods once the co-investment is arranged and repairs and other running and occupation costs can reasonably be passed to the occupier in full. There is a mutual interest in improvements to the property and both the owner and Fund investors share capital growth.
Peter Bolton-King, CEO of the National Association of Estate Agents, said: "A fund such as this will prove to be the only way for many Londoners to be able to afford to buy given the current constraints in obtaining affordable mortgages. The residential housing market has been ripe for private sector investment given the consistency of the returns it offers. I hope that this represents the start of a positive relationship between institutional investment and home owners."
