(March 27, 2014) — Dutch real estate managers are beginning
talks with institutional investors from outside the Netherlands to try and tempt
them into investing in their residential property.
Dutch pension funds have been strong investors in their own
residential property for many years, but now, thanks to a host of new assets
hitting the market, the fund managers are targeting external investors too.
From January this year, a large portion of the regulated
rental sector, which accounts for around 90% of Dutch rental properties (2.3
million dwellings), has been significantly opened-up to market.
Social housing providers, which currently own 71% of the rental
market, have been forced to only run properties for lower-income earners who pay
below €699 in rent per month. This has forced them to sell any housing stock that
commands higher rents to other investors.
A report produced by eight real estate managers in the
Netherlands has estimated that these legislative changes could increase the
growth in the number of dwellings in the non-regulated rental sector by up to
200%, or 695,000 homes, over the next 20 years. The regulated market is
projected to decline by 10% to 16%.
“The lights have definitely all turned green this year,
allowing the Dutch residential market to emerge as a strong, viable investment
asset class for international institutional investors,” said Jaap van der Bijl,
managing director of investor relations at Syntrus Achmea Real Estate &
Finance, one of the contributors to the report.
“If the Netherlands can attract the capital flows to boost
the supply of stock, I see no reason why we can’t match the appeal of
neighbours such as Germany and the UK, where housing is hot.”
One of the biggest advantages for external investors wanting
to invest in Dutch residential property is its position as a diversifier. The
correlation between the Dutch residential market and other European residential
assets is low, according to the report.
Unlike property prices, which lost 18% of their value during
the financial crisis and have failed to recover, rental yields have steadily
increased year on year, particularly in the non-regulated sector.
The house price-to-rent ratio—which shows the price an
investor has to pay for annual cash flows the investment generates—has trended
back to its long-term average in the Netherlands.
Further boosts to demand in the non-regulated market could
come from the less favourable tax treatment of mortgages in the Netherlands,
measures to close the gap between regulated and free market rents, and future
upward pressure on Dutch residential prices thanks to a shortfall in supply.
Since the onset of the financial crisis, the construction of
new housing has fallen from a peak of about 80,000 per year in 2008, to less
than 60,000 in 2011. Meanwhile, demand for additional residential units will
increase by 540,000 over the next 10 years, driven mainly by an increase in the
number of elderly single person households, a rise in the number of students,
and younger singles leaving home.
Van der Bijl, whose firm acts on behalf of 50 Dutch pension
funds and insurers, said the options to invest in Dutch residential real estate
ranged from funds to direct investment and joint ventures.
With approximately €1 billion worth of deals in the
pipeline, the yields today are around 1.5% plus a cash dividend (more than 4.0%),
but they are expected to rise to 5% and above in the coming years, according to
van der Bijl.
“We’re looking towards Western European investors today, but
it could appeal to US and other investors too,” he said.
“Amsterdam is a great location, but the local GDP structure
in The Hague is also interesting. We also include the wider metropolitan area,
for instance Amstelveen and Haarlem. Every town has its specialized profile,
which requires local in-depth knowledge to select the most promising real
estate in that local market.”
Syntrus Achmea would also consider Utrecht and smaller
cities with a well-diversified demographic, a historical town centre, culture,
good transport links, and good universities or colleges.
Bouwinvest, which manages the real estate portfolio for the
construction workers pension fund in the Netherlands as anchor investor, is
focused on the non-regulated residential rental sector and believes the recent
regulatory changes have given a strong positive stimulus to the private rental
sector.
Its fund is currently the largest real estate fund in the
Netherlands, standing at €2.6 billion in unleveraged, core residential assets.
“Our target is an average 6% fund return in the long-term,
and we’re hitting that,” said Michiel de Bruine, head of asset management at
Bouwinvest.
“German investors are already here, and the Nordics are like
minded. We are investing another €600 million over the next three years in the
sector, and have supported the construction of over 1,000 apartments in
Amsterdam alone.”
Bouwinvest also manages an office and retail fund, and a
healthcare fund is planned.
There are only six European countries with sizeable
institutional investments in residential as part of their total real estate
allocations, according to Investment Property Databank: the Netherlands (49%),
Switzerland (47%), France (12%), Germany (12%), Sweden (12%), and the UK (4%).
The Netherlands was the least volatile market for total
returns during the past 10 years, with a return-risk ratio of 1.04. While total
returns for residential property were superior in the UK, France, and Sweden,
at an average of just under 10%, these were accompanied by relatively high
volatility.
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