This week’s exclusive Q&A speaks to one of the UK’s best-known property management company, which is currently dealing with many of the country’s most respected large and small housebuilders about creating homes in the growing Build to Rent sector.
Please tell us a little about yourself and SDL Group.
SDL Group is a residential property business with over 35 years of experience in the valuations of property and the lettings & selling of homes either through traditional estate agencies or auctions. The Group now employs almost 500 people and has a turnover of over £60m per annum
I have been with SDL for over five years and actually came back to the business following a four year excursion elsewhere. I returned to head-up the newly formed corporate letting division, which has recently been renamed SDL Bigwood PRS & Estate Management. This combines the skills and expertise of the corporate letting team and Bigwood’s estate management team.
Collectively, we now manage circa 30,000 properties from a block-management point of view and 6,000 units on a full-management perspective. Perhaps more interestingly, we have just taken on our 1,000th Build to Rent property.
My role from the outset was to set up and grow a Build to Rent offering for the group, as we identified several years ago that the private rental sector (PRS) was ready for major change and transformation. This was due to the growing popularity of private rental, which, according to most professional opinion, accounts for over 20% of all housing stock and was and still is relatively unsophisticated.
I am therefore working with a variety of investors on how we can revolutionise the private rental sector and the momentum has really started to pick up as we’ve progressed through the year. We’ve completed 250 Build to Rent properties in the financial year 2015-2016.
We’re also projected to end this financial year with 1,400 properties and a further 1,500 various stages of construction and a further 2,500 properties at the planning stage.
Have the momentous political events of 2016 changed your company's role dramatically over the past year?
We saw a slight slowdown in the approval of funding for Build to Rent schemes immediately after the Brexit decision but thankfully this was short lived. After the initial shock, the big institutional lenders now appear to have an even greater appetite for the sector.
I am actually anticipating an increased interest in Build to Rent due to the recent decline of the bond markets as Build to Rent offers institutions a relative safe and secure home for their capital, whilst providing a regular and constant return – ideal for pension funds looking for annuity income.
Can you illustrate the range of new homes developments you are currently involved in?
We are currently working on a wide range of schemes, ranging from city centre glass towers to suburban housing estates. However, our main exposure at the moment is with the suburban housing stock that accounts for around 80% of our properties, although we do have a number of larger apartment schemes which we are working on coming which will come to fruition within the next few years.
There is a lot of focus on [small and medium-sized] SME housebuilders being the key to the UK's new homes targets - have you seen big differences in the approach of SMEs towards the task ahead compared to those of national housebuilders?
We are currently dealing with a couple of the large (top 15) housebuilders, as well as a number of smaller, more localised house builders and developers. No matter their size, we face the same challenge of convincing them of the merits of Build to Rent on their hard-earned land bank. As Build to Rent may not always offer the same returns as building standard open-market stock, we often demand discounts from list prices and we burn through their land bank quicker than they would like.
But once they understand the sector and the benefits it can deliver in terms of an instant street scene and site progression, the underpinning of larger-scale sites, and better and more efficient use of their capital reserves, they are hooked and can’t do enough.
Do you think the homebuying public is starting to see more benefits to new build homes over older properties e.g. with energy efficiency, better spec, communal facilities etc?
Definitely, the difference in the heating and running cost of a property is now starting to make a real impact on the decision-making process of everyone involved in buying and renting a property. A new modern house will be thermally efficient and require substantially less heating cost and this is something we look to focus on in our marketing literature.
The other attribute we focus on is ‘safety & security’, with all our properties having hardwired heat and smoke detectors and security alarms fitted. Coupled with ‘safe-by-design’ layouts, including additional lighting, [this] ensures all our tenants feel safe and secure in their home.
We also spend a significant amount of money on the soft landscaping and its maintenance to ensure the properties are well designed and in attractive locations. We feel this will help build communities and ensure our tenants stay longer in their homes – the feedback from lease renewals backs this hypothesis as over 80% of our tenants are currently renewing their contracts.
Is there a simple solution to increasing the number of new homes built (for sale or rent), or do you have a suggestion for the best 'first move' to improve housing supply?
As I’m not a developer myself, it is difficult to say what the issues are but what I do experience and witness on a regular basis is a slow and very methodical planning process that can add years to a proposed scheme. So the reduction of red tape and unnecessary planning restrictions could free up land for developers to increase supply.
Another issue we are experiencing in the Build to Rent sector is on the price of land, as these schemes are modelled on a long-term return. Established housebuilders can afford to take a longer-term view on a site and work on much larger margins than we can.
Do you see the private rented sector expanding quickly in the coming years of property development?
Yes, I can only see the sector growing and I am predicting that within the next five years PRS will be contributing over 60,000 units per year across the UK.
What plans does your company have for the next 12 months?
We will look to continue to expand our client base and exposure in this sector and increasing our run rate of over 2,000 Build to Rent properties per annum.