Posted by: Adam Roake | January 13, 2010

PRIVATE RENTAL SECTOR

This article in the FT, outlining British Land’s new “Buy-to-Let” fund, neatly sums up the difficulty with the rental market. The fund is targeting a rental income yield of 3.5% gross, hoping to deliver a 2% dividend. The exciting numbers though come from capital growth, where they are targeting 14.5% per year. It doesn’t take much to realise this latter figure is BL’s forecast of house price inflation in central London in the £500k to £5million bracket. The model is based not on the performance of the residential rental market but rather on annual inflation of the value of the underlying asset – it is in essence the same model as the good old buy-to-let clubs and in the short to medium term assumes the rented property will be sold rather than retained in the rented sector.

If this is the sort of interest that HCA have uncovered in their Private Rental Sector Initiative, I wonder how they expect to ensure that long term considerations take priority over short term capital gains.

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