PENSION funds are taking a renewed interest in Scotland’s private rented homes market following a call for more investment to help alleviate the country’s housing shortfall.
According to the Scottish Government, 465,000 new homes are needed by 2035, and trade body Homes for Scotland (HFS) last year asked the London School of Economics and Cambridge Centre for Housing & Planning Research to examine ways of boosting construction.
One recommendation in the HFS report was to develop a prospectus to attract institutional money back into new rental housing – an area that pension funds largely withdrew from in the 1970s. Royal London chief executive Phil Loney told Scotland on Sunday the sector now represents a “very attractive market” for firms seeking long-term returns.
He said: “It’s an area that’s of interest to us. We have a decent-sized property fund and generally speaking we’re starting to see insurers getting interested in rental.
“What’s particularly attractive about that type of asset, where you can get good-quality rentals, is that it matches up to some of the very long-term liabilities that we have.”
Legal & General, which bought a stake in Edinburgh-based housebuilder Cala last year, said the private rented sector is on its radar, while rival Aviva Investors announced in 2009 that it was planning to launch a £1 billion private residential rental fund.
However, a spokesman for Kames Capital said the fund manager – formerly called Aegon Asset Management – was focused on commercial property and had no plans to target the residential sector, while Anne Breen, head of real estate research and strategy at Standard Life Investments, said one of the key challenges was finding large enough parcels of property to deliver suitable returns in what has tended to be a “fragmented” market.
Breen added: “While we are also attracted to the long-term diversification benefits of residential property within a commercial real estate portfolio, to date our funds have only invested as part of a mixed scheme of which a proportion is residential.”