4 Myths of BTR

BTR has been in UK market for quite some time. Many organizations have experimented with it and if one reads to the projections of the Real Estate consultants, this sector is in upswing. However, there is a mystery about returns, it has generated for the investors so far!

For more than a year, I have learned that there are popular myths basis which many people are trying to build BTR business. In my view if BTR has to sustain in the long term than it is important the UK Real Estate acknowledges these myths and uses facts to build the business models.

For starters, BTR is the short form of Build-to-Rent. Residential developments which are specifically designed, built and managed for rent. Hence, it is different to Build-to-Sell (BTS).

Myth #1: Millennials don’t want to own the property. Hence, they will keep on living on rent as it is convenient and this gives them freedom.

I am yet to meet a millennial who could afford to own a property but decided not to. Converse is the truth, people who can’t afford buying property have no choice but to live on rent.

Analysis of any operating BTR property will bring clarity that there are different reasons for people to live on rent. People living on BTR property are same human beings who could be renting in the vicinity be it BTR or any comparable Non-BTR property.

Myth # 2: BTR properties needs to feature rich to attract the renters and better rent in comparison to the properties in the vicinity.

This concept finds its origin in the USA where outside the work district, the big residential properties are built, people drive to work and back. In the absence of such amenities, these residential blocks may not be attractive. First, these concepts are at least 2 to 3 decade old and emergence of private players for Gym and entertainment has changed the landscape and UK having far more compact urbanization in comparison to USA, some of these ideas are unnecessary loading on occupiers. For example, if one is interested in using gym, she can pay per use gym in the neighbourhood, why should she be paying compulsorily as part of monthly rent.

Myth #3: Less private space more communal space.

Some people claiming to be authority on BTR design suggest that in BTR, there will be more attrition of renters and hence the hallway should be wider for easy movement of goods and furniture. Similar arguments were made for other spaces. If there is too much attrition that means economies of scale is not captured and if renters are being asked more rent ( for features) for less private space ( to accommodate features such as wider hallway and huge entrance), chances that such renters are limited and have not explored space for rent in the vicinity.

Myth #4: Re-labelling of Lettings and Build Management as BTR experts

Lettings and Building management are important pillars of BTR operations but approach is vastly different due to single owner, single lettings and single building management firm and change in the mindset that tenants are customers not the landlord. Landlord is actually service provider. This requires 180-degree mindset change for world class customer service. Old habits and new label are not going to work.

# Bonus Myth: Promise of better returns.

Institutions looking at investing in BTR in UK should look at it from the risk diversification strategy and not as better return strategy. If there is a competition to buy a land, BTS wins due to exit visibility. Now, if there is no land, there can’t be BTR scheme so BTR players need to up their land price to get the same site. This impact return on investment, right at the start and combination of above four myths only leads to spiral down.

Some argue that UK has not yet seen the full-time horizon like other countries but if leading indicators are guiding it, what makes people feel confident about reversal of the situation.

Am I pessimistic about the future of BTR? Answer is emphatic no. In my view, need of hour is to address these myths with fact in constructive way and work towards creating this great Real Estate Asset Class on reality.

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Prakash Singh is currently COO at Strawberry Star and views are personal.