Investors continue to invest in residential property even in times of crisis

28 april 2020

The residential investment market is a robust market even in times of crisis. During the past six weeks, more than 800 million euros was invested in Dutch residential rental housing. The credit crisis had previously demonstrated that even during a crisis, the housing market provides stable direct yields and a low vacancy rate. Due to the enormous shortage of housing, which is now even twice as high as during the credit crisis, the demand for affordable homes will remain high. Especially now when initial indications are showing that capital for rental homes remains available, both market players and the government should do everything possible to combat the decline in building permits that has been observed.

Housing shortage doubly as high as during the previous crisis
The Netherlands is struggling with a shortage of approx. 315,000 homes. That is more than double compared to 2008 when the housing shortage was approx. 150,000. Since permission procedures may be delayed even longer due to the corona crisis, the shortage is threatening to rise even more and the demand for housing will remain undiminished.

Number of building permits declines
As a result of the nitrogen pollution crisis, the number of building permits issued in 2019 was already lower than ambitions previously set to address the housing shortage. Permits were issued for approx. 58,000 homes instead of the 75,000 that were initially pursued. In response to the corona crisis, EIB recently published a prediction that only 48,000 permits may be issued in 2020. Possible delays in zoning procedures especially are the cause of this reduction in permits being issued. The shortage may increase even more despite the possibility of less incoming migration as a result of the current travel restrictions.

Thijs Konijnendijk, head of research: "It can be expected that the housing shortage will increase again when the economy improves after the corona crisis, and we did not continue to build sufficiently to meet demand. The declaration 'Continuing to build the Netherlands together' by minister Ollongren is a positive move which emphasises building capacity must remain at the right level and should not collapse as it did during the last crisis."

Direct yields residential investment market stable during a crisis
During the last crisis, it emerged that residential rental homes are a stable investment even in challenging economic conditions. The direct yield on a housing investment remained stable at around 4%. With a vacancy rate of under 2.5%, rental payments also remained at the right level. A similar stability is also anticipated during this crisis. Investors have indicated that there is practically no change in payment arrears compared to the period before the corona crisis.

Investors continue to invest in residential rental homes
Of the 800 million euros that was invested from the beginning of March, a great deal of offers were made during the period of lockdown by both Dutch and international investors. This confirms once again that investors have confidence in the housing market. Another striking aspect of current transactions is that several short-term transactions are unconditional. Investors that make offers with favourable terms and fewer conditions are able to differentiate themselves in the current market. Earlier research from Capital Value indicated that investors have over 10 billion euros available for investment in the Dutch residential rental market for the whole of 2020. A recent survey by Capital Value among private investors showed a willingness to invest: more than half of those surveyed indicated they want to continue investing in rental homes. Housing associations were also surveyed; 89% indicated they would continue to invest regardless of the economic conditions.

Marijn Snijders, director: "It is good for the housing market that housing associations and investors keep investing. There are opportunities in the new-build segment because building production appears to be keeping up the pace. It is crucial that market players and municipalities cooperate even more to realise sufficient new-build plans for affordable rental homes. A dramatic decline in building production, like what happened during the last crisis, must be avoided. What is critical, too, is that banks continue to finance new-build projects. The government can play a potential role in this by guaranteeing temporary loans."

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