The banks’ retreat from UK property lending has made the role of institutional investors and public-private partnerships vital to the recovery of the sector, a MIPIM event will hear today.
With banks struggling with £285bn of commercial property debt – an estimated £48bn of which in breach of financial covenant or in default – only 5 per cent of the £11.3bn of new lending to the property industry in 2012 went to commercial development.
To fill the void many in the industry are backing institutional investment – such as pension, life and insurance funds – and public-private partnerships akin to the Manchester ‘earn back model’, where the city can ‘earn back’ some of the extra national tax revenue generated in the area.
Bill Hughes, Managing Director of Legal & General Property and Junior Vice President of the British Property Federation, said: “Against the challenging wider economic background, there is a sea change going on in the ownership structure of property. The built environment – the very urban fabric which allows our economy and society to develop over the long term – is, and always has been, a long term asset class best suited to those who are willing to invest for the future and do not rely on access to debt or short term liquidity.
“In light of the growing finance deficit, driven by Government and traditional banks’ part withdrawal from this area, it is therefore left to institutional investors, such as life, insurance and pension funds, to step in to fill the gap. Therefore, those with long term capital to invest and the necessary property skills to protect these investments from depreciating over their life cycle, have a far greater role to play. This should not only lead to a growing emphasis on public-private partnerships but also a continued rebalance of roles within funding models, which will help bring about much needed regeneration and vital investment in our social infrastructure.”
With funding models changing, there are also fears too much is being expected of the planning system in the pursuit of economic growth. Marnix Elsenaar, Partner at Addleshaw Goddard, said: “A real problem for the planning system is that the government expects so much of it. It’s held up as a major brake on the development industry and the knight in shining armour that’s going to lead us back to growth. The message seems to be: if only planning can be quicker and simpler, all will be well.
“Unfortunately, it’s only a part of the story – without finance and occupier demand, no number of planning consents will result in things getting built. The report card for the government’s reforms is mixed. Localism has added new layers of policy and procedures with the advent of neighbourhood plans and some schemes have got bogged down in judicial reviews relating to such orders before a planning application has even gone in. In the plus column, the NPPF is having a positive impact particularly for the housing sector.
“But the real challenge remains to improve relationships between developers and local authorities and to create a positive, pro-sustainable development culture. This means shifting the debate from rule changes to skills, resources and culture.”
Steven Norris, Chairman of Soho Estates, added: “While there is some evidence that money is easier to come by for buyers and developers alike this year, the truth is the government is a long way from seeing the residential sector as an engine of growth. They could look to improving a still sclerotic planning system for a start.”
