How technology is opening up single-family rentals as an emerging asset class for investors.
Today, technology plays an integral role in society, heightened ever more by the global pandemic. Traditionally rooted, the real estate sector is one of the last industries to witness the rise and adoption of tech, but this is dramatically changing.
Within the residential sector there is an evident under-supply of housing which has resulted in a subsequent lack of sufficient rental stock. Could the institutionalisation of the rental market help address the problem?
The residential category has always been largely admired by institutional investors for its stable returns and low-risk profile. With the pandemic, the demand for Resi has grown rapidly, given the challenges for other RE asset classes and negative yielding bonds. But Resi has always faced a problem with scalable supply, given 98% of the housing stock in Europe is largely inaccessible to investors. Until now.
Through advanced technology, investors can now access previously undiscovered markets, such as single family rentals (SFR), which would otherwise be too operationally intensive to execute. Unlike investments in apartment building complexes or multi-family homes (MFH), a SFR refers to a stand-alone house or apartment, which may come with a garden, garage or some additional space.
The investment plan for SFRs is simple: buy a property, refurbish it to enhance its value and rent it over a long period to establish a rental income while gaining from capital appreciation.
In the current market, institutional investors could only target approximately 2% of the housing stock by primarily focusing on MFH and build to rent (BTR). Capital allocation for residential investment has also been limited to sub-sectors, such as co-living and student accommodation, but SFR presents an untapped market for European investors. However, to deliver these portfolios at scale, current investment models are both high risk and high cost, with long development cycles. SFR has the potential to be an investment category of $42t, but why has it been so difficult to unlock this emerging asset class?