The banks’ retreat from UK property lending has made the role of institutional investors and public-private partnerships (PPPs) vital to the recovery of the sector, according to a presentation given at the Marché International des Professionnels de l’Immobilier (MIPIM) international property event hosted today in Cannes, France.
Delegates will be told that banks struggling with £285bn of commercial property debt, an estimated £48bn of which in breach of financial covenant or in default – only 5% of the £11.3bn of new lending to the UK 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 PPPs akin to the Manchester ‘earn back model’, where the city can ‘earn back’ some of the extra national tax revenue generated in the area.
“Against the challenging wider economic background, there is a sea change going on in the ownership structure of property,” said Bill Hughes, managing director of Legal & General Property and junior vice president (JVP) of the British Property Federation (BPF). “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 [the UK] 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 PPPs 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 that too much is being expected of the planning system in the pursuit of economic growth. Marnix Elsenaar, a partner at UK corporate law firm 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.”
The US money market fund reforms came into effect in 2016 and are already dramatically shaping US fund industry with investors flooding out of prime funds and into government securities. While the reforms are similar, they are not the same. GTNews interviews Yeng Bulter, global head of the cash business at State Street Global Advisors on the differences.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.