London - Shariah-compliant Gatehouse Bank has formed a joint venture with property developer Sigma Capital to build thousands of rental homes in Britain, as it looks to gain from a decline in home ownership.
Britain, traditionally seen as nation of homeowners, has seen record numbers of households move into the rental sector in recent years due to a shortage of homes and mortgages.
“For us the supply-demand dynamic is absolutely rock-solid. We only see that growing as affordability constraints continue to strengthen,” Gatehouse Bank's vice president of real estate, Scott Nichol, told Reuters on Thursday.
He said the private rented sector was very fragmented, with many “mom and pop” landlords. “Our entrance into the market is to try and bridge the gap between landowners, developers and housebuilders, and the institutional market.”
Gatehouse and Sigma will initially build 2 000 new homes in Liverpool and Salford in north-west England, with a total development cost of 200 million pounds, with the view to possibly ramping up the portfolio to a total of 6 600 homes, which would cost a further 500 million pounds.
Gatehouse is a London-based investment bank that makes Shariah-compliant investments that meet the principles of Islamic finance, which bans pure monetary speculation and interest payments.
The deal comes as Britain pushes for London to become a leading hub for Islamic finance. In October, it became the first Western country to issue a sovereign sukuk, or Islamic bond.
Investor interest in the private rented sector has surged over the past year thanks to a growing mismatch in housing supply and demand as well as government efforts to encourage investments through the establishment of a 1 billion pound Build-to-Rent fund.
There are signs that housing is still unaffordable for many British families despite government efforts to help them buy homes. On Thursday, the Bank of England unexpectedly cut a mortgage support scheme, citing a desire to avoid a housing bubble.
Most institutional investment so far has been in London and focused on building rental flats for 25 to 35-year-old professionals by the likes of developer Essential Living, backed by US-based M3 Capital Partners. A Delancey-Qatari Diar joint venture is revamping London's Olympic Village to provide rental homes.
Nichol said the Gatehouse-Sigma joint venture would target renters aged 35-49 who had young families, and would look to build low-rise housing such as semi-detached homes or town houses. The average monthly rent across the portfolio will be about 700-800 pounds for a three bedroom property.
Gatehouse is looking to provide up to 90 million pounds in equity and both parties are in negotiations with banks for financing to complete the initial 200 million pound phase, they said. Construction is expected to take place over 24 months once financing is secured.
The bank has an option to provide more equity for the 500 million pounds needed to build a further 4 600 new homes, the companies said.
All the homes will be built on land bought by Edinburgh-based Sigma and the plan is for the joint venture to eventually have a portfolio across Britain focused on big cities such as Birmingham and Leeds.
“As we compete in a tough global race, Sigma's joint venture with Gatehouse is brilliant news for the North West (of England) and for Britain, showing that we are open for business,” British Prime Minister David Cameron said in a statement.
“The rental market is a vital asset to this country and this new investment will help to boost local economies, create jobs and deliver more homes for hardworking people,” he said. - Reuters