Are high-end rentals too much of a good thing?

John Maclean on the plethora of build to rent

Build to rent schemes are being billed as the next big thing in property development but will the schemes work everywhere in the UK?

If we take Scotland as an example, plans have recently been lodged in Glasgow for two major Build to Rent (BTR) developments which will deliver over 1,150 apartments for rent.

Other Scottish schemes at various stages of planning include two schemes in Aberdeen of 750 units, and plans in Fountainbridge and India Quay in Edinburgh for 900 units.

The BTR concept goes beyond normal property renting, with the sales pitch focusing on “a lifestyle, not a landlord”.

It is envisaged that these schemes will incorporate a range of services included in the monthly rental such as 24-hour concierge, a gym, gardens, leisure facilities, broadband and television.

Developers are yet to release projected pricing for these apartments but, ahead of that, what evidence is there that there is an active letting market to support these developments?

A search of available rental properties in Glasgow city centre, for example, shows that there are currently around 400 one or two-bedroomed apartments available for rent.

Average monthly rentals sought for these properties ranges from £550 for a one bed, through to £900 for a two bed.

The BTR model closely resembles the evolving market for purpose-built student accommodation where increased competition has driven developers to offer far more amenities to meet student expectation.

Yet, despite this increased focus on service provision, the sheer volume of new build student development which came on stream at the same time in the city has led to significantly more supply chasing fewer, more pricesavvy, students – and the inevitable pressure on price.

It is difficult to know what premium people would be prepared to pay for a high amenity rental.

Average Scottish earnings, at around £24,000, would tend to suggest that there are not going to be high volumes of people with sufficient disposable incomes to afford rents that may average at £800 to £1,000 per month.

The argument in favour of BTR is that it offers a high amenity service for a single monthly payment.

It is further argued that BTR provides a realistic alternative to ownership in a market where mortgage availability and lack of deposit is hampering first time buyers.

However, the average property price in Scotland is around £150,000 so assuming a 90 per cent mortgage can be secured, the monthly mortgage cost would be approximately £700.

On the face of it, ownership might be at least as cheap as renting.

With the supply of affordable property one of the key political issues of the moment, any initiative that increases the availability of residential property is welcome.

BTR though, as a concept, remains something of an unknown quantity in Scotland, pitched at people unconcerned with property ownership but keen on an affordable city centre lifestyle.

The question though is whether there are enough people, with sufficient earnings, to justify the volume of development.