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Improving valuations and unlocking sector capacity

Improving valuations and unlocking sector capacity. NHF Treasury Management Conference, 30 Euston Square, London Andy Smith, Director, Valuations – Savills 8 th October 2014. UK Housing Tenure – More Market Renting? More intermediate tenures?. Social housing stagnant

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Improving valuations and unlocking sector capacity

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  1. Improving valuations and unlocking sector capacity NHF Treasury Management Conference, 30 Euston Square, London Andy Smith, Director, Valuations – Savills 8th October 2014

  2. UK Housing Tenure – More Market Renting? More intermediate tenures? • Social housing stagnant • Home ownership in decline • In-betweeners • Market renting expected to increase • Policy flexibility • Opportunity for social landlords and institutions • Quality product Source: Savills, CLG, Survey of English Housing

  3. The Housing Association world is changing HA’s – moving into private renting and build for sale • Internal cross subsidy • Becoming providers across all tenures • JV’s/ investment partnerships • Looking at assets (honest) • Bogged down in low value areas Privately Owned HA’s - For Profit RP’s • 2013: 25 registered; 10 in pipeline, some substantial • Range of innovative forms of Affordable

  4. Change Drivers: Political Government messages to RPs – build additional homes, and value for money– or merge and let someone else use the asset base HCA wants a smaller number of larger partners and delivery of the agenda More Welfare Reform Additional uncertainty in HA capital and revenue income stream • despite CPI plus 1% rent settlement – Univ Credit cap not helpful • so make max use of resources

  5. Housing supply – lessons from the past? Source: DCLG +Savills

  6. Government plans to deliver 165,000 affordable homes between 2015 and 2018 Affordable Homes Programme - HCA • Funding for new homes at 80% market rents. • Up to 2015 allocated. • £1.7bn 2015 -18 • To hopefully fund 165,000 new homes • 75% of grant if on site pre March 2015 Affordable Homes Guarantee Programme - HCA • Government debt guarantee to bring down the cost of borrowing for new homes. • Approximately £220m has so far been allocated out of a £350m fund to be spent by 2017. But • Starts down by 5,650 in 2014 • Enthusiasm of HA players? Level of grant? • Regulatory burden? Affordable Rents = more risky than Target Rents?

  7. Are we clear about our objectives? Low and affordable rents Good quality well managed homes House maximum number of people Build more Housing Community initiatives Ok - let’s use the profit approach to help us meet our objectives

  8. Why is the profit motive good for Housing? Higher surpluses Greater financial capacity More money to spend on meeting objectives Make the right compromises Use finite resources more effectively The key is what you do with the profits

  9. EUV-SH or MV-STTHow do they differ?

  10. What does that mean in terms of £££s?

  11. Existing Use Value for Social Housing Key Factors Affecting Valuation Assumes sale to another RP only Social / target / affordable rent levels Rental growth Condition – costs to repair / maintain Discount Rate (All Risks Yield)

  12. Market Value subject to TenanciesKey Factors Affecting Valuation Assumes Mortgagee in possession Move from Social/Affordable to Market rent levels Active Asset Management Opportunistic sale of voids/break up Yield required by investor

  13. Does location matter? YES! In some parts of the Country, MV-STT and EUV-SH will be the same It’s all in the Rents!

  14. Does location matter?

  15. Price movements for VP’s, MVSTTs and EUVSH - illustration

  16. Uplift above Base EUVSH by type £15k per unit released for new development

  17. So what does this tell us? What are we being asked to value? Its all in the lotting! Market Evidence points to latent headroom in EUV-SH values MV-STT is a higher value – but LTV? Funders Attitudes

  18. Thank you Andy Smith Director, Valuations Savills, 33 Margaret Street London, W1G 0JD +44 (0) 20 7409 5993 +44 (0) 7967 555 480

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