Brexit triggering more than just Article 50 — A stark correction of the UK commercial real estate market on the horizon?

Christopher Oufi

UK real estate is estimated to be worth a staggering £871 billion according to the British Property Federation. This value is equivalent to 10% of the UK’s net wealth, showing just how important this market is to the nation that has immersed itself in a risky situation. HMRC stated that 20% of the commercial real estate is sold every year; totalling £115 billion in 2015 alone — is this set to rise with Britain’s exit from the EU eminent?

Since the triggering of Article 50 and the negotiations commencing, uncertainty has risen amongst big business with no certainty over what life outside the EU will look like for the UK. There has been an unprecedented wave of financial institutions acquiring commercial real estate away from the financial centre of the world, London. This has resulted in the unimaginable becoming a reality for some giants within the financial services industry. A tide of pessimism has activated contingency plans, with offices looking to be secured in other major European cities.

Although  a turbulent 2017 for the prospects of commercial real estate, Savills reported surprising news that total volume of commercial property transactions within Central London will surpass £20 billion by the end of 2017. The year also still has potential to  break the £21.6 billion record set in 2014. UK Head of Capital Markets for JLL, Alistair Meadows, said such strong performance in the face of continued political upheaval and economic uncertainty demonstrates a long-term investor commitment and confidence in the UK real estate market.”

The figures speak for themselves but when put into context, they are not as impressive as initially thought. Robbie Duncan of Numis Securities, said, “However, it’s important to note that sales of two big buildings [the Cheesegrater and the Walkie Talkie] make up a huge chunk of that investment.” Analysts within Jeffries quoted that British real estate investment trusts are at a 30% discount to their booked net asset value when traded.

Brexit has become the poster child of geopolitical events within Europe since the global financial crisis of 2008. A great volume of noise has been produced due to the urgency in finding avenues to shelter from the incoming storm. Germany and France have attracted enormous interest from commercial investors across all ends of the financial services spectrum. The likes of Goldman Sachs and Bank of America have already set up operations in newly acquired office spaces in Frankfurt and Paris respectively, with images being released of what each entail. Bloomberg reported that 50 banks have already discussed relocation plans from London, with notable institutes such as JPMorgan Chase, Citigroup, and Deutsche Bank  actively searching additional office spaces.

A crash in the market ensued due to the political consequences that are manifesting from the crisis within Catalonia’s bid for independence on 27th October 2017. Such shockwaves have negatively affected real estate prices dramatically over the past month within Barcelona, creating a proposition for those financial institutes looking for a quick deal to be made. The opening up of a cheaper option to act as a safe haven for financial operations may be a dark horse for investors looking for a quick and attractive getaway from London.

The current environment has left an air of uncertainty lingering around us; the real estate sector on the whole needs clarity over the transition deals taking place for Brexit. Transparency is key to mustering and maintaining high levels of investment in the capital, otherwise, a chain reaction of capital flight looks like a certain probability.

Global Real Estate Concerns – The House Always Wins?

Benjamin Foster

Global real estate markets are facing increased concerns as the fundamentals of previously booming markets begin to scare regulators and institutional investors. The main target of this disquiet is China, with Beijing and Shanghai both well known for ballooning house prices and witnessing double-digit gains last year. Whilst this has prompted a degree of regulatory tightening in the main cities, Bloomberg’s recent investigation into the economic data of ten key Chinese cities highlights a large degree of fluctuation in the fundamentals behind property bubbles. These fundamentals (including population growth, income gains and the ratio between house prices and pay) and their fluctuation across the Chinese market are raising interesting concerns for those navigating the region’s real estate market.

A deep examination of the ten cities, selected out of the 70 that the government closely monitors, reveals a mixed picture. Shanghai and Beijing — facing lower population growth, moderate increases in wages and elevated home prices — appear increasingly vulnerable, especially when one factors in plans to cap their population and curb urban sprawl, traffic congestion and air pollution. Smaller cities also should be regarded as somewhat risky investments, with Haikou offering weak wage gains and lower population growth, raising concerns over the increased investment in the region. In contrast, Guangzhou and Shenzhen in the south may face less pressure, with far more favourable rates of population and income growth, as well as far more opportunities for development across the board.

A similarly troubled market is also clearly present across the Pacific, with the Australian housing market finally winding down. With almost half a decade of surging prices, the market value of the nation’s homes has exploded over $5 trillion, four times the country’s gross domestic product. Not even the U.S. and U.K. markets achieved such heady peaks a decade ago. Like the U.S. and the U.K. however, Australia’s obsession with home ownership is firmly entrenched in the nation’s economic focus. Record-low interest rates, tax breaks and increasing breadth, and depth of mortgage lending have pumped incredible amounts of debt into Australian homes.

The increasing treatment of housing as a financial commodity has seen a spike of borrowers tying themselves into a maze of mortgage-related products. Whilst this has been incredibly profitable in the short term for banks operating in the region, Daniel Blake, economist at Morgan Stanley, highlights that banks may find it harder to value their collateral if — or more likely when — the market falls dramatically as investors look to consolidate their portfolios of multiple homes. Indeed, the signs from some institutional investors are not particularly positive, with UBS economists declaring that “Australia’s world-record housing boom is officially over… The cooling may be happening a bit more quickly than even we expected.”

The world’s biggest sovereign wealth fund, however, says it has no intention of pulling back from real estate. Whilst Norway’s $1 trillion fund does note that gaps are opening between the noted valued of real estate and their value on the physical market, a potential sign that a correction could be looming, the fund is steadily growing its real estate empire (valued at $32 billion).

“It’s clearly a red flag in pricing if anything is too far off in any direction,” Karsten Kallevig, chief executive officer of Norges Bank Real Estate Management, said in an interview at his Oslo office on Wednesday. Yet perhaps the fund’s holistic approach to the sector, in its eyes, helps to mitigate these risks. Investing in a wide range of key global cities with prime office space, rather than domestic real estate being the backbone of their portfolio, the fund also holds an increasing amount of retail and logistics properties. With Amazon as one of its biggest tenants, the real estate unit is a close observer of the shift to online shopping.

“Retail is going through an evolution for sure, and it is something we are very focused on,” said Romain Veber, the London-based head of European markets. The fund is placing its bets on “high street retail,” which will “survive in the long term,” he said.

Will Abolishing Stamp Duty Help First Time Buyers?

Frances Senn

In the most recent budget, Phillip Hammond announced plans to abolish the stamp duty for first time buyers looking on low value housing. This new piece of legislation looks to help young people climb onto the first rung of the property ladder. The idea behind this is that it will make deposits more financially viable as first time buyers won’t have to factor in the cost of, on average, £11,000 for a property in London.

Stamp duty is a tax payable by the purchaser and is calculated as a percentage of the property value. Hammond’s announcement intends to scrap stamp duty on houses up to the threshold of £300,000. For houses worth £500,000, the stamp duty will be calculated based on the difference between the threshold and the value of the property. He claims that 80% of first time buyers will pay no stamp duty at all, and those looking to live in more expensive areas, such as London, will benefit from the reduced stamp duty charges. Moreover, he hopes that this will save each first time buyer an average of £1,660.

However, this does not attack the root of the problem. House prices continue to rise at a fast pace. In light of recent news that mortgage interest rates will rise from 0.25-0.5%. Those with mortgages on a standard variable rate will have to pay more money. This means that the affordability tests conducted at the point of looking to buy will become even more difficult to pass, regardless of the stamp duty cost. The affordability assessment intends to test whether borrowers would be able to repay their loan if repayment rates were 3% points above the current rate. These increased rates, combined with the Office for Budget Responsibility’s prediction that Hammond’s plans will cause house prices to inflate by 0.3%, move the property ladder just that bit further from reach.

The Chancellor’s plan is not helpful in every instance. Outside of London, abolishing the stamp duty will have little to no effect. Before the budget, the average stamp duty paid on a house in the North of the country was as little as £11.82 as so few properties are valued above the previous threshold of £125,000. First time buyers in these areas will not benefit in the same way that those looking to buy further South will. To truly benefit from this move, a buyer would have to be in a financial position to purchase more expensive property in the first place.

Furthermore, this plan will lead to ‘price bunching’. Under new rules, houses worth £500,000 will charge a £10,000 stamp duty. The stamp duty for houses worth just one penny more will be £5,000 more expensive. It would therefore make sense to look for cheaper properties in London, and other expensive areas, in order to avoid this.

Finally, the most overlooked factor is that the average house price in London last year sits just below the upper threshold at £481,556. Although the abolishment of stamp duty on properties below £300,000 is incredibly appealing and seems generous, the house prices in London prevent the new rule from being effective. Those looking to buy in the capital remain disadvantaged by the budget reforms because the house prices are too high in the first place.

Therefore, the problem lies with the rising house prices, not the sum of stamp duty charged. A select few will benefit, namely those in a financial position to purchase a mid-price property, most likely outside of London. This reform is misleading and fails to take into consideration the exorbitant house prices, regardless of the stamp duty charge.

UAE’s depleted pulse rate set for an imminent rejuvenation within its real estate market

Christopher Oufi

A watchful eye should be cast over the United Arab Emirates (UAE), and its forever changing demographics within the real estate industry. The property market has been suffering in a state of depression, resulting in a three-year slump in house prices and rents.

The UAE, notably Dubai and Abu Dhabi, is associated with extravagant lifestyles, making it ironic that such an abundantly wealthy area is juxtaposed with a region of continuous decline. It begs a specific question to be answered: Why is an industry, that, in the first two quarters, produced over $36 billion in transactions in Dubai alone, still deteriorating?

With the oil crisis sweeping throughout the Middle East, it comes as no surprise that the low oil prices and redundancies have contributed to the downturn. The fuse for the depressive state of the market was lit when mass scale production for residential property took place during the boom period of 2004 to 2007, with supply outstripping demand considerably. A healthy supply of property remained unsold for years, where gradual implementation should have been the approach.

Global uncertainty has been an unfortunate, but major factor in dampening confidence within the real estate market. This includes scepticism leaking out from cross-continental and regional countries, including doubt shrouded over China and Russia’s short term economic environments, as well as the political unrest becoming turbulent across the Middle East. The detrimental effects are painful swipes towards global financial markets, resulting to investors redirect positions they held or planned to hold.

The Emirati states are looking to correct their oversaturated luxury market. Valuance Consulting stated that expansions for low to mid-income individuals are becoming prominent. The Managing Director of the property adviser, Salah Belkhayat, said, “This is where I believe the market is extremely undersupplied and not adapted to the demand.” Property developers are ensuing strategies to exploit the copious supply of untouched land to produce affordable housing; key to bottoming out the slump and boosting a revival in the market.

Asteco published data stating Dubai’s freehold residential areas fell by up to 7% in value alone in March 2017 compared to previous months. Cluttons supplied data highlighting rent in districts within Abu Dhabi was forecasted to decrease by a further 5-7%. A soft market looks to be a certainty until at least the first quarter of 2018.

Still rightfully considered by many as “up-and-coming,” the country has a promising future through further economic development and growth. Flexing their development over the past decade with their vast and illustrious expansions has attracted major foreign investment. The country is a hotspot for various investors, who twitch at the prospect of the huge financial incentives they can realise within the real estate market. For this to become a reality, two key aspects should be considered. On one hand, importance must be placed on liquidity for investors as markets are tightening; and on the other hand, government efforts should be seen to ensure a correction of short-term softening, occurring in the market.

In today’s global real estate industry, the UAE has surprisingly become a better-value option. With big projects taking place in the foreseeable future—such as Expo 2020—job creation and a rise in demand in construction and residential space will mould the seven states to become far more complete, regulated, and mature. Overlooking the market now would be foolish, as inevitable prosperity lies ahead; hidden behind this temporary smokescreen.

Viability Assessment Loopholes: to be condemned or learnt from?

Frances Senn

The ‘Viability Assessment Loophole’ has recently been scrutinised by the charity Shelter in a report documenting the effect it has on the construction of affordable housing. This loophole specifically refers to developers being able to avoid building the minimum number of affordable homes. It is defended on the basis that the investment will not be financially viable in terms of profit margin as the developer cannot guarantee at least a 20% return.

This right to viability is outlined by the National Planning Policy Framework (NPPF 2012, paragraph 173), which places emphasis on the ‘competitive returns’ necessary from a project to justify its undertaking. This is often quoted in conjunction with Section 106, which outlines that developers have to provide a certain number of affordable houses in developments of more than 10 homes. It is the application of this clause that becomes problematic in light of competitive returns.

This loophole is a driving force behind inflation. Building affordable housing can be avoided if the developer can prove they will not make a 20% profit margin for the project. This is calculated by looking at the ‘Residual Land Valuation’. The ‘Gross Development Value’ is the amount for which the developer expects to sell the properties. From this, the developer’s profit (20%) and the costs of building (making the houses affordable) are subtracted. If a developer can prove that making the houses affordable will reduce their profit, they can afford to pay more for the land compared to a developer who is unable to prove the development is not financially viable.

If a profit margin of at least 20% cannot be guaranteed, there is no logic behind investing in the development in the first place. This incentive is necessary, but the need for affordable housing is of equal importance. In treading the line between financial gain and social benefit, we encounter a problem. If the ‘Residual Land Value’ is subject to change based on the housing market at the time of calculation, why should the legislation used to stimulate the construction of affordable housing remain fixed?

Tony Pidgley from the Berkeley Group argues that Section 106 should be applied to developments of more than 100 homes, whereas the ‘Community Infrastructure Levy’ would be a more effective way of dealing with sites of fewer than 100 homes. This could be a solution to the problem. The ‘Community Infrastructure Levy’ is a tariff based system designed to cover the cost of the new development on the community, for example school costs and public transport. Smaller developments will have less impact, and will therefore cost less, and consequently developers can afford to build more affordable homes.

Incentivizing the construction of affordable housing is more important than condemning the use of the loophole if we want to solve the social housing crisis. The only way to do this is to reconsider the legislation surrounding it.

Britain must build up

Hyung Joo Peter Ahn

The lack of houses in the UK has become a chronic problem in the UK. The rate of home ownership has fallen, and younger people have found it increasingly difficult to get on the housing ladder.

The lack of houses has had a direct social impact. Those who are wealthy enough to purchase their own houses, or fortunate enough to inherit one are benefited from rising property prices, increasing the wealth of the upper class. Rising property prices lead to increases in rent, hurting younger people and those in the lower socioeconomic classes. Higher rents and a lack of affordable housing has even led to increased rates of homelessness.

The need for houses have contradicted the need to preserve the green belt. Many members of the public oppose the green belt, as it has thwarted the ambitions of eager builders and councils pressed to provide housing. In addition, many green belt areas are neither publicly accessible nor aesthetically pleasing. Many experts agree that parts of the green belt with no environmental or aesthetic value should be designated instead for development.

However, green belts are vital for many reasons, apart from their original intention of preventing urban sprawl. Green belts help preserve the character and heritage of historic country towns, and ensure that they remain attractive for tourists. Green belts also help to ensure high air quality in cities; examples from India demonstrate how uncontrolled urban development can reduce air quality and increase health risks. The open space created by green belts also allows for a number of different educational and recreational activities.

Building taller residential and commercial buildings in London, Manchester, and other major metropolitan areas may alleviate the stress to build on Greenfield land and create greater population density.

Residential towers have suffered notable failures in the past, including in at least one case, Ronan Point a collapse. The futuristic residential blocks of the 1960s and 1970s were notorious for anti-social behaviour, poor conditions in communal areas and problems with dampness and rodents. These problems are still freshly ingrained in many people’s minds, and these perceptions will have to be overcome.

However, Residential towers have also had notable success both in the UK as well as in other countries. South Korea and Japan rely extensively on apartment blocks to house their populations. In fact, buildings such as the Trellick Towers in London have had notable success after refurbishment. The problems that arose in the early high-rise apartments were due to poor design, with many architects fixated on the ideal of a socialist utopian living space instead of the realities of British culture, and poor quality prefabricated construction techniques

London can look to Paris to see the effects of banning tall buildings, one in which countless people pay extortionate amounts of rent to live in tiny rooms, derisively called ‘maid’s rooms’. It is clear that the only solution to ensure a sustainable future for British cities is up, and the countless tall apartment buildings under proposal demonstrates a new confidence for affordable apartment block living.


UK Housing Shortage

William Newby

Britain has been plagued by a housing shortage in the last few years. Successive governments have proposed to build 250,000 homes a year but 1979-80 was the last year in which that target was achieved. Shadow Secretary of State for Housing John Healy stated, ‘after 7 years of failure and 1000 housing announcements, the housing crisis is getting worse not better’.

Indeed, in 2015 the median house price in England and Wales was nine times the median earnings. Young people are bearing the burden of the housing crisis; home ownership has fallen by 30 percentage points among 25-34 year olds in the last 25 years. Additionally, homelessness has doubled and the construction of affordable houses has slumped to a 24-year low. Communities secretary Sajid Javid presented this week a long awaited white paper, with plans to address the housing supply.

Central to Mr Javid’s paper is a reorganization of how councils calculate how many houses need to be constructed. The system under the coalition government allowed local councils to assess the housing demand in their own constituencies. Under this system it is estimated that 40 per cent of planning authorities do not have an up to date plan to meet actual demand. The new system proposed by Mr Javid will be similar to the previous labour government system, in which a nationally standardised way of calculating housing demand will be made by central authorities, which will then be distributed to local councils. Councils which fail to meet their planning targets may have to surrender control to central authorities. Additionally, the paper allows higher charges to be levied on developers, which should provide local councils with more funding, making them, in theory, more efficient.

Councils are not the only ones to face changes. A major problem with the housing shortage is associated with the housebuilders simply not building houses. Housebuilders have long been accused of sitting on plots of land with planning consent given for development while prices rise, known as ‘land banking’. The builders deny the accusations, and some land banking is needed in order to maintain a supply of land for future developments. However, the white paper allows councils to enforce a two year planning period, in which housebuilders have to complete. Councils will be able to purchase the land from the housebuilders if they fail to build. The government now also stipulates that in areas of especially high demand, homes be built in higher density, meaning taller blocks rather than large development plots will be built.

However, the new plans remain open to criticism. Although the white paper will improve the rate of housing construction, the impact will only be slight. Other more drastic policies to rectify the housing crisis have been dropped, such as building on the green-belt.

There have been an estimated 200 housing initiatives since 2010. However, the country still suffers from a chronic lack of supply. Greater reform is still needed to rectify the problem, despite Mr Jarvid’s white paper being a step in the right direction.

World Expo 2020: Dubai’s industrial dreams

Bethany Jones

In 1851 the ‘Great Exhibition of the Works of Industry of All Nations’ took place in London to mark 20 years of rapid Western technological and industrial advancement. Over 150 years later, this festival of industrial innovation continues through ‘World Expo 2020’, which was awarded to Dubai in 2013. During the World Expo, Dubai expects to host 25 million people, all coming together under the universal aims of ‘connecting minds and creating the future’.

It seems strange that a celebration of Industry is to take place in Dubai, where investors often focus capital in the city’s world-class retail and leisure opportunities. Whilst Dubai’s industrial assets are often disregarded by investors, industrial has been the busiest property sector there for the past two years. The planned construction of a $1.6bn Terminal 4 at Jebel Ali Port, developments such as Dubai Industrial City (DIC), and Dubai’s 2030 Industrial Strategy suggest lucrative openings for industrial investment in Dubai in the years to come.

To complement Expo 2020, Dubai’s 2030 Industrial Strategy was launched last year. Its target is to generate Dh165 billion by 2030. Earlier this week it was announced that Dubai will get a $3billion loan to fund expansion of its Dubai World Central airport to prepare for the World Expo 2020. DP World is planning construction at the Jebel Ali Port of a $1.6 billion Terminal 4, alongside an expansion by 1.5 million 20 foot units (TEU) of annual capacity to the existing Terminal 3. Spurred on by airport and port expansions, the industrial zone of Dubai South is thriving: the first phase of a new aerospace facility was completed earlier this week, benefiting from strategic connectivity fostering an innovation hub.

Dubai’s infrastructural growth is not immune to global economic uncertainties. Declining oil prices since 2015 have meant real estate investors in the oil-dependent economies of the Gulf are postponing real estate investments. Cluttons’ bi-annual Dubai Industrial Market Bulletin for Spring 2017 noted decreased industrial property demand leading to capital value corrections in Dubai’s submarkets. Whilst cyclical correction was inevitable due to excess supply in 2016, Faisal Durrani, Head of Research at Cluttons, has also observed a “flight to quality amongst existing occupiers, creating a growing pool of more secondary space, which is slow to let”. Decline in value by 20% was noted in areas such as JAFZA North, with tenants such as Mohebi Logistics constructing their own purpose-built spaces, and others relocating to new builds in Jafze South. Nevertheless, Faisal did not seem discouraged, arguing “2020 World Expo should aid the emergence of a more stable picture towards the end of 2017”.

Despite uncertainties among oil-rich economies with regards to current property investments, the UAE’s mission to diversify its economy in the lead up to Expo 2020 requires continued government investment in infrastructure and competitive investment policies. As a result, opportunistic investors should look to take advantage of industrial property’s recent excess supply and weaker demand due to falling oil prices, in the hope that speculation will pay off in the longer term.


A Retail Outlook for 2017 Real Estate Investment

Bethany Jones


CBRE has recently announced in its yearly review that UK retail property values fell by 5% in 2016, with a particularly subdued Quarter 3. The result of the EU referendum and the following devaluation of the pound, to a value 20% less than the same time a year ago, is a likely cause. Several changes affecting retail companies lie ahead in 2017: business rate adjustment for the first time in seven years, the increase in minimum wage, and the triggering of Article 50. So what can we expect for retail property investment in the year to come?


Perhaps surprisingly, transactions in the high-street property market totalled over £4.5 billion in 2016, the highest level since 2010. Low interest rates have resulted in investors moving money out of residential buy-to-lets in favour of high-street shops. However, there is a strong London bias in investor focus, with high demand for AAA locations resulting in downward pressure on yields. Leading property firm Savills claims 2017 may be a good time for vendors to pass on prime retail units to private investors seeking income security over growth, as rents may be nearing their limit. If UK institutions can adapt to regional supply and demand patterns, an interesting investment strategy for 2017 may be to capitalise on less sought-after submarkets.


Minimising occupational costs will be a key retail tactic in 2017 to counter the squeezing of margins in the face of a weak pound and business rate adjustments as of 1st April. Tighter margins will likely affect mid-market fashion, along with low value supermarket stores. Despite increased demand for value-products in an uncertain market, these retailers face the least flexibility in raising prices, and thus strategies of out-of-town relocation or a focus on cheaper regional markets may emerge.


A total of £3 billion was invested in UK shopping centres in 2016, a significant decline by £1.3 billion from the year before. This is largely due to losses resulting from a weak Q3. UK-based institutions invested their lowest amount in shopping centres since 2001, at only £68 million. The significance of a weakened pound is obvious by the £1.35 billion of shopping centre transactions from non-domestic investors for 2016. This is a theme which will likely continue in 2017 with market irregularities settling and investors growing confidence as the pound stabilises at its new lower level. After making no shopping centre purchases in 2015, significant acquisitions of £386.7 million were made by councils last year, accounting for 13% of UK shopping centre deals.


Against the odds, Intu, a British Real Estate Investment Trust (REIT), noted significant successes in 2016, including the purchase of Merry Hill shopping centre for £410 million. Intu’s full-year results were published earlier this week, noting share increases of 6%. The property giant’s Chief Executive, David Fischel, seems confident for 2017, commenting: “we are well positioned as we focus on top quality assets in prime locations”. Intu’s success shows the likely continuation of investor bias towards prime stock, particularly as risk-taking will be minimised due to the uncertainties surrounding the triggering of Article 50.


The looming challenges for retail tenants; in the form of minimum wage increases and business rate changes, are most likely to affect small-to-medium enterprises with the tightest margins. Thus retail property investors should look to larger units, outside of central London, which can attract anchor retailers who will be largely unaffected by minor tax adjustments.


Build to Rent

William Newby


Earlier this month, the government’s white paper to rectify the UK’s housing issue, and the associated build to rent consultation paper placed significant emphasis on the build to rent sector. The move marks a distinctive shift away from the Cameron era policy, focused on owner occupation. But has the government actually delivered on this promise of build to rent?


To facilitate higher levels of build to rent among the UK’s major housebuilders, the government has planned to revise its National Planning Policy Framework (NPPF). The revised framework should encourage planning authorities and housebuilders to consider build to rent in their plans.


The new framework offers a multitude of positives that should help facilitate a growth in the build to rent market. There is a large amount of flexibility available to housebuilders. For example, government has decided against defining build to rent as its own use class. More importantly, government has decided not to enforce a minimum period for which housebuilders must hold a development for private rental, allowing them to shift to sales of the properties if the rental market is not forthcoming. Acting as a safety net for investors, this should encourage investment into the build to rent sector.


Additionally, the NPPF encourages ‘Affordable Private Rent’ as part of new developments. The framework expects a minimum of 20% of all units in a scheme to be at a discount of at least 20% of the average local market rents rates. Developers will have to agree to provide the discount in perpetuity with planning authorities, with an agreed fee if the scheme is taken out of the rental sector. A flexible approach to such discounts has been encourage by government, allowing some properties to be a greater than the normal discount to market rent, while others at a lesser discount, catering for a wider range of needs.


Finally, the government is emphasizing leases of three year or more, with a break at sixth months. The hope is that this will provide renters with greater stability. No legislation will enforce the three year leases, which would otherwise deter investment. However, ultimately, three year leases will be welcomed by investors, unlikely to complain about loyal tenants.


Will the proposal work? Whilst flexibility and a one size does not fit all policy will be helpful, the it may make the difficulties of arranging build to rent schemes worse. Onus on planning authorities to negotiate with housebuilders when schemes can swap out of rental and into sales has significantly increased. Emphasis on ‘Affordable Private Rent’ in the NPPF is largely left to the discretion of planning authorities, and remains only an expectation – rent controls will not be enforced.


Finally, planning authorities are already stretched, and have a noted lack of experience in the build to rent sector. The emphasis in the NPPF will require a higher attention to detail from the authorities as they come to decision for each scheme on a case by case basis. Government has expressed little on how it plans to overcome such obstacles.