Opportunity for Institutional Investment in Shared Ownership

Global commercial real estate services firm, Avison Young, has recently released new research identifying the opportunity for institutional investment in Shared Ownership, and we sat down for a short and exclusive interview with the firms Director of Residential Investment, Burak Varisli to learn more.

Shared Ownership refers to the buyer purchasing a share of a home (usually between 25% and 75%), while the housing provider retains ownership of the remaining equity; under Shared Ownership a minimum deposit of 10% of the value of the purchaser’s share is required.

As a concept, Shared Ownership is 40 years old, with the first development of its type brought to market in Notting Hill in 1979.

The ownership sharing model is limited to households earning less than £80,000 per anum (£90,000 in London), an according to Avison Young’s report, currently around 200,000 Shared Ownership properties exist across the UK.

However, despite its relatively small market share, Shared Ownership has grown substantially over the last decade as the UK housing market continues to suffer from an ever-increasing affordability crisis, especially in London and the South East.

Image courtesy of Avison Young

According to the latest English Housing Survey outlined above, home ownership in England has declined from its 2003 peak of 71% to just 64% in 2017-18.

As mentioned previously on Residential People, home ownership has dramatically fallen amongst the young generation, with 1 in 3 millennials estimated never to own a home.

Figure from the English Housing Survey reveals that home ownership for 25-35-year-olds in the last decade fell from 55% to 38%; while the average deposits have climbed to almost £45,000.

As more people are thrust into the private rented sector, there is also a push to deliver affordable housing across London and South East, something that Avison Young is also championing.

Despite an increase in the overall delivery of low-cost homes as outlined below, there remains an insufficient amount of stock compared to the strong demand.

Image courtesy of Avison Young

Avison Young believe that Shared Ownership is a ‘key product’ that ‘has the potential to not only have a major commercial impact but also provide social value to communities.’

Shared Ownership offers an attractive alternative to home ownership, for those priced out of the open market and is one of many programmes along with Starter homes and Help to Buy.

However, Shared Ownership can often work out more affordable compared to Help to Buy equity loans where a purchaser needs a £17,000 (5%) deposit, compared to a 25% stake under Shared Ownership requiring only half that amount.

Shared Ownership has typically been owned and managed by Housing Associations, however, since 2016, the government has provided £4.1 billion into the sector to deliver 135,000 new homes along with grant funding and reforms for private investment, unlocking the Shared Ownership market for institutional investors.

Richard Stonehouse, Principal, Head of Residential Investment at Avison Young believes that: “Shared Ownership has not been given enough air time as an asset class. This has generally been attributed to the perceived complexity and limited supply of the product. As more savvy investors become switched onto the benefits of investment, the increased liquidity in the market will create greater transparency, and those investors who are being given good advice will increasingly benefit.”

In a statement released earlier, Burak Varisli, Director of Residential Investment at Avison Young, said: “An increasing number of private and institutional investors have deployed considerable capital in Shared Ownership through innovative business and funding models. “

Mr Varisli started his property journey in 2005, working as the Assistant Director for Corporate Finance at Assesttrust Housing Limited.

We spoke exclusively to Varisli to learn more about the ways that these ‘innovative’ models have helped accelerate the delivery of affordable homes across the country and in particular, across London and the South East.

Residential People: Thank you for giving us an interview, can you elaborate on why Avison Young is so passionate about Shared Ownership and the virtues it brings?

Burak Varisli: I began my career at Assesttrust which was one of the first ever investors in trying to make affordable investment viable in the affordable housing sector without a grant.

Within my time there we invested a substantial amount of capital into social and affordable housing, and predominately into shared ownership.

During this time, I had significant exposure to housing associations and institutional investors, and during that period we tried to increase the increased to increase the exposure of shared ownership to [the] institutional community. [This attempt to gain more exposure was] quite a challenge because it was quite a misunderstood product and investors at the time, and investors weren’t really well educated on Shared Ownership at the time.

RP: What type of negativity did you experience from investors?

BV: “Investors [had complaints] around the complexity of Shared Ownership by way of security, the size of the market in terms of the number of units by Housing Associations and the lack of private investment.

It [Shared Ownership] was always seen to be [at the] edge of the alternative market in the residential space. Going back at the time, institutional investment in the residential sector was not a big thing, and it is becoming now on the back of Buy to Rent and everything else.

Moving forward a few years following the financial crisis, the withdrawal of grant funding by the government, and the reduction of provisional debt funding by the mainstream banks; there has been significant growth in the range of institutional investment in the residential market into social and affordable housing.

On the back of this, investors understanding and desire for Shared Ownership asset(s) have been growing, but it is still nowhere near full potential in terms of investment.

From our perspective, we believe that so is one of the products that can become a mainstream product int he market alongside rent (Buy to Rent etc.) and provided a very good way of accessing home ownership and a social impact in communities.”

RP: Is there a particular reason as to why Avison Young is focused primarily on London and the South East, given the low numbers of shared ownership stock in Scotland, and Wales?

BV: “Although Shared Ownership does exist in Scotland and Wales, one of the reasons why Shared Ownership has been so successful in England is due to its support from the government in the form of grants.

The other aspect is the affordability pressures are much greater in England than they are in Scotland and Wales, and as the housing associations in Scotland and Wales prefer to deliver their products through rental schemes rather than Shared Ownership.

The fundamentals in terms of market growth, affordability and profitability have been much more prominent in England.”

RP: In England, Shared Ownership starts and completions have more than doubled since 2015/16. Why in your opinion is Shared Ownership proving to be so popular in London & the South East?

BV: “The reason why provisions have doubled is due to three forces:

Firstly, the growing affordability pressures in London & the South East is enabling more and more development.

Secondly, the increasing change in the housing and delivery model as well as the lack of grants available for affordable & social housing pre-2015, [comapred to the high levels of grants available today]. Housing Associations began increasingly looking for tenures such a ‘private sale’ and Shared Ownership where they could see immediate benefits for sales [which were used to] subsidise their delivery of affordable housing products, enabling them to deliver more housing under Shared Ownership.

The third element which is quite significant is since 2014, a substantial amount of grants have been made available to [the] delivery of Shared Ownership products through grant funding, and London & the GLA have been of the main drivers of [this] growth.”

RP: Are there any areas in London where Shared Ownership doesn’t work?

BV: “While I can’t comment on the specifics, we [Avison Young & the market as a whole] got to a stage in Central London that buying and delivering Shared Ownership from a consumers perspective becomes very difficult to afford.

Properties in areas such as Regents Park where we would be developing units that cost £900 – £950 per sq ft, it’s very difficult [for consumers] to acquire 25% of that property when your income cap is set at £90,000 per anum (London households have a £90k cap to qualify for Shared Ownership)
So, as a result, there is significant pressure on Central London, and I believe that there some pockets of the city where Shared Ownership products don’t actually work.”

Mr Varisli concluded: “Looking to the future, we believe that the asset class will gain even more momentum as more investors seek access points for meaningful opportunities. The UK’s affordable homes shortage is a well-known fact and does not require debate. Shared Ownership is a key product with the potential to not only have a major commercial impact but also provide social value to communities.”


Credit: Dominic Gabriel

Source: https://news.residentialpeople.com/exclusive-avison-young-director-reveals-fantastic-opportunity-for-institutional-investment-in-shared-ownership-1533/