Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

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May 29, 2024

HOME | Economic research – Little impact on housebuilders ahead of elections, Rightmove | News – Australian property giant plans to leave UK development and contracting; Housebuilders ‘planning to set up housing associations’

Company news

Home REIT (HOME, shares suspended)

Real estate investment trust funding the acquisition and creation of properties providing accommodation to the homeless. Agreement secured for surrender of leases. “The Company announces that it has reached an agreement with Big Help [part the Big Help Project, a charity that tackles poverty] for the surrender of its leases on over 600 properties which it leases from Home REIT, equating to c. 30% of the Company’s portfolio by number of properties. These lease surrenders completed on 28 May. The properties are occupied by a mixture of private rented sector tenants on assured shorthold tenancies and social tenants placed by local authorities on licences. The tenancies will now transfer to Home REIT, enabling the Company to directly collect the underlying income from these properties, increasing rent collection and facilitating asset management opportunities. The Company will be appointing various Property Managers to the surrendered properties. The transaction is in line with the Company’s investment policy to stabilise the portfolio and increase rent collection. The Board and AEW have considered all options and believe this achieves the best solution for the Company and its shareholders, and allows the Company to gain control of the properties, appoint property managers, collect the underlying rental income and remove Big Help as a tenant from the portfolio”.

Economic research

Housing market. Contrary to widespread assumptions, the prospect of general elections, do not deter home owners’ moving plans, according to research from Rightmove. New data from the UK’s biggest property website indicates that 95% of people planning to move home say the election will not affect their plans. Analysis of year-on-year buyer demand changes around the 2015 and 2019 elections also highlights steady activity in the lead up to a vote (below). Demand is measured by the number of people sending enquiries about properties for sale on Rightmove, and year-on-year change has been used to remove the usual seasonal peaks and troughs in the market. In the two months leading up to the May 2015 election, buyer demand increased by 5% year-on-year in March, and by 6% in April. During the election month demand increased to 9% year-on-year, with the increase moving to 18% up in June, as the market benefitted from a post-election boost. In 2019, buyer demand remained stable in the months before the election, increasing by 1% year-on-year in October and 4% in November. During the election month in December, demand was up by 13% year-on-year, followed by a 14% increase in January 2020. Viewpoint: I’m surprised by the findings for 2019, particularly regarding the more international London market, when there was a sharp contrast in policies being proposed by Boris Johnson and Jeremy Corbyn. This time, it’s a hard to slip a cigarette paper between the claimed economic policies of both contenders and, frankly, there seems to be far more interest among the media than the population as a whole. I’d concur that there will be next to no difference in housing appetite. It’s the economy stoopid …

Buyer demand pre and post elections

In other news …

M&A. Australian property giant Lendlease plans to offload its portfolio of nearly a dozen development projects in London, Birmingham and Manchester and its UK construction arm within the next 18 months, The group aims to simplify and restructure the global development and construction business to concentrate on its profitable home market after a four years in which has seen Lendlease’s Australian-quoted shares have fallen by around half. Group Chief Executive Tony Lombardo said that Lendlease would realise A$4.5bn (£2.3bn) from the sale of international construction and early release of global property assets. The sale of international construction will impact 1,400 staff, while the exit from property assets should raise A$2.8bn (£1.5bn); the group says it was already well advanced on plans to sell the US construction operation. This divestment will focus on three key areas: the group will look to sell land and inventory held on the balance sheet; it will work with its partners on its land management agreements, in which it is the master developer, to realise value and accelerate the release of capital through either bringing in new partners or land sales; on eight projects in which it has commenced as a capital partner, it plans to take projects through to completion and then divest. Lendlease said the sell-off plan would see non-cash writedowns of around £260m relating to goodwill attached to the US and UK construction businesses from the Bovis acquisition in 1999.

Viewpoint: There should be appetite for the development assets, although the disparate and complex looking nature of the portfolio might mean they are sold piecemeal, rather than to a single buyer. However, other than selling to the management, it’s hard to think which buyer would emerge for the UK construction business. The image of the sector is not great and the business is now widely associated with construction of Lendlease’s own assets in the UK.

Housebuilders, social housing. A range of housebuilders are considering setting up their own for-profit housing associations, Inside Housing. Developers are exploring entering the affordable housing sector as they struggle to find housing association. or ‘registered provider’, partners for the Section 106 social housing commitment for their sites. Creating for-profit RPs would mean house builders own and manage the affordable housing on their schemes, allowing them to progress through the planning process. It also allows developers access to a growing pool of private capital that wants to enter the affordable housing market. James Bailey, director and housing leader at PwC UK, said the large professional services firm was “seeing an increase in the number of house builders and developers looking to set up their own for-profit registered providers”. Interest and appetite were “coming from all corners of the market”, he said, ranging from listed public limited companies to private regional small and medium-sized builders.

Viewpoint: Probably an inevitable move. Some larger HAs – such as London & Quadrant, which had previously pledged to build 10,000 homes over 10 years – have now been concentrating on maintaining their existing stock and have been facing financial constraints. The S106 commitments means, in most cases, the builders need to sell around 15% of their homes to RPs, so what happens if they are not buying? It’s not really in most housebuilders’ DNA. But tying up with institutional investors, probably in off-balance sheet JVs, could square this circle and potentially provide (theoretically) annuity-like income streams from government-underwritten rental streams. At least for the more innovative developers.

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