October 07th, 2016
Who can remember the last time they spoke to a property professional without hearing the term “PRS”? Certainly not me. For those in the industry, the days of opening an email bulletin without seeing a headline regarding a forward-funding deal, construction commencement or computer generated images (CGIs) of a PRS scheme seem almost a distant memory. But what does the term actually mean and why is it used so frequently? Having recently completed a research project on PRS and how it can be targeted at various demographics our new development surveyor, Mike Shaw, is well educated on this subject. Here he explains what PRS is and why it’s the buzzword in property:
What does PRS actually mean?
The private rented sector (or PRS for short) is, technically speaking, an umbrella term used to describe any residential property in which a tenant lives and pays rent to a private landlord. This is opposed to social housing whereby homes are provided by government agencies or non-profit organisations and are subsidised for the benefit of those with low incomes or specific needs. The PRS model, therefore, also includes buy-to-let properties i.e. properties purchased by (for the most part) individual investors in addition to their primary residence from which they plan to earn a secondary income in the form of rental revenue. What the industry has come to know as PRS can actually be more accurately described as institutional PRS – that is to say large-scale property funded by financial institutions with the sole function of generating a steady rental income.
Why has it become so popular?
In recent years we’ve seen a boom in the development of these products as a result of soaring house prices and lack of mortgage availability in the wake of the financial meltdown of 2007/08. Huge numbers of hopeful first-time homebuyers have since been priced out of going ahead with the purchase of a property and are forced to rent.
Developers, with the financial support of institutions, have capitalised on this and seized the opportunity to offer accommodation of a far greater quality than is typically provided in private buy-to-let properties.
What’s more private landlords are being de-incentivised from purchasing additional properties thanks to Mr. Osborne’s decision to hike up SDLT (Stamp Duty Land Tax) by 3% in April 2016. This creates an opportune period for the development of specific build-to-rent products in a market where demand is on the up and supply is fading away.
What are the key differences between build-to-rent developments and regular apartment blocks?
1. Owner-Occupier free
There can be no owner-occupiers here; these developments are only home to private renters. Whilst for the most part this suits those who have been unsuccessful in gaining mortgage finance to buy their home, there is also a growing proportion of renters who do so because they prefer flexible tenure as opposed to being tied to one place. Assured shorthold tenancies (AST’s) are become increasingly popular now in a time when global connectivity is becoming more of a demand.
2. Professionally Managed
These schemes are professionally managed in order to maintain their high-quality image and, more essentially, tenant satisfaction. The cost of this is rolled into the rent payable for tenants living here as all residents benefit from this service.
3. The Extras
The final key factor of build-to-rent products is the provision of facilities and amenities.
The institutional PRS model that we have become familiar with in the UK actually originated overseas in the US and in mainland Europe, both of which are home to long-established private rented sectors. As time has gone on the scope of on-site facilities and amenities included in these developments, particularly in the US, has widened further and further, from the modest heights of gyms and communal work/living spaces to libraries, spas, cinema screening rooms and even somewhat excessive virtual golf business areas.
In the UK we are yet to have a build-to-rent development offer anything too off-the-wall, however schemes are beginning to evolve slowly (in their conception phase anyway) and we are seeing more provision in terms of catering to a wider target market.
Some developments such as this upcoming luxury scheme in Newcastle are pushing the boundaries with promises of faciltiies such as a cinema room and dinner party room.
Where is PRS heading?
The coming years should prove to be an interesting time for the UK in regards to monitoring the success of institutional PRS schemes in comparison to their overseas counterparts. One thing is for sure though; if the UK private rented sector truly establishes itself as a key sustainable part of the country’s wider economy then developers will have to become more and more imaginative with the facilities they build in to these products in order to remain competitive and appeal to a broad demographic.
If you have a site that may be suitable for PRS or if you want to hear more about our schemes across the country then follow us on twitter or give us a call on 0161 832 7601.