Build-to-rent sector — EWI's new growth driver

The Aberfeldy Village project by EcoWorld London. EWI pic

By Sharen Kaur - Published in NST Property on September 6, 2018

THE build-to-rent (BTR) sector in the United Kingdom has grown significantly in the last few years, in particular up to 2016, according to analysis by AMA Research.

The largest volume of BTR is in London, with significant activity in Birmingham, Manchester and Leeds.

Increasing interest by both UK and overseas large institutional investors are said to be key elements supporting the growth in the BTR sector.

The UK government has declared BTR as the necessary solution to the country’s housing crisis. It has been forecasted that 10,000 homes could be provided through BTR per year.

It was reported there are 117,893 BTR homes across all stages of the development lifecycle (completed, under construction and in planning) in the UK, compared with 90,761 homes at the end of the first quarter of last year.

The emerging BTR sector represents an important new engine of growth for Malaysia-listed Eco World International Bhd’s (EWI) 70 per cent-owned UK joint venture, EcoWorld London.

EWI recently clinched its first BTR deal with Invesco Real Estate for two of its housing project sites in Kew and Barking, at an estimated value of £400 million (RM2.12 billion).

The signing was as one of the most significant BTR deals ever undertaken in the UK property market.

Invesco is a global real estate investment manager. It invests in direct property and publicly-traded real asset securities and has a 36-year investment track record.

EcoWorld London chief executive officer Cheong Heng Leong (left) signing the heads of terms agreement for a build-to-rent deal with Invesco Real Estate managing director Simon Redman, witnessed by EcoWorld International executive vice-chairman Tan Sri Liew Kee Sin (standing, left) and Invesco director John German, recently.

It will forward-fund the development of more than 1,000 new BTR homes in Kew and Barking, on behalf of a North American pension fund client.

In a statement, EWI said planning permission has been secured for both sites and development work has started with construction due to complete in stages from 2020 onwards.

EcoWorld London chief executive officer Cheong Heng Leong said the deal represents an important new engine of growth for the company and the UK, despite the potential challenges of the current pre-Brexit market.

“Kew and Barking are great locations for renters in terms of affordability, connectivity and local amenities,” he said.

The Kew site is located next to the new Brentford Football Club’s 17,250 capacity stadium that is under construction and just minutes away from Kew Gardens, a Unesco World Heritage Site.

The Barking site is located next to the historically important Barking Abbey, which housed William the Conqueror in 1066 while he constructed the Tower of London.

EXPANDING IN the UK

Cheong said more sites have been identified within EcoWorld London’s existing portfolio for its BTR projects.

This will stabilise and enhance EWI’s income generating capacity going forward to include steady cash flows from institutional investors buying BTR properties.

EWI and its joint-venture partner Willmott Dixon Holdings Ltd, UK’s 42nd largest private company which holds the balance shares in EcoWorld London, aim to deliver over 10,000 houses in Greater London and the southeast of the UK.

They will develop a total of 12 sites across the capital, with an estimated gross development value (GDV) of over £2.6 billion.

These include Dagenham, Barnet, Brent, Bromley, Ealing, Hounslow, Lambeth, Tower Hamlets and Westminster, as well as one major project outside London, in Woking, Surrey.

EcoWorld London was launched in June this year, following the acquisition of 70 per cent stake by EWI in Be Living, the residential development arm of Willmott Dixon.

The acquisition will see EWI expand from high-end projects with the Ballymore Group into the mid-market segment and BTR.

“EcoWorld London has designed its BTR business model centred around a golden brick arrangement where land and costs incurred are paid upfront, and the remaining costs funded through a progressive payment structure. It enables us to effectively leverage a relatively small amount of upfront equity to fund the entire BTR development and generate positive project cash flows earlier,” said Cheong.

EWI executive vice-chairman Tan Sri Liew Kee Sin said there is great potential in the UK BTR sector.

“This deal validates the group’s strategic move to make the fast-emerging BTR business one of the key growth drivers for EcoWorld London.”

Liew said the group will embark on more such deals and has received expressions of interest from other funds, particularly from Asia.

“This signifies their confidence and ours in the positive long-term prospects of the UK property market, particularly that of the BTR,” he said.

According to research by CBRE, the annual BTR investment volume in the UK is relatively small at £2.4 billion, compared with £103 billion a year in the United States.

With North American funds now actively pursuing BTR opportunities in the UK, there is huge growth potential for the sector and CBRE expects the annual investment volume to quadruple within five years to £10 billion.