“Residential investors benefit from dullness”

Construction companies tell the FD that foreign investors are more reluctant to put money into Dutch housing. Does this “competitor in the market for affordable rental housing” dropping out provide an opportunity for domestic investors? We have a call about it with Robert-Jan Foortse, head of European real estate at APG.

The Netherlands is faced with a huge task. To alleviate the housing shortage, approximately 100,000 houses must be built annually. That goal is already far from being met, despite substantial investments by parties like ABP. “ABP has set a goal of investing 10 billion euros with impact in the Netherlands until 2030. Five billion of this will go to affordable rental housing. However, the housing task is so big that 350 to 400 billion euros are needed to build all those houses. That 5 billion is a lot of money, but not nearly enough. We therefore desperately need those foreign investors.”

But you could also think that fewer foreign investors means less competition for APG, which invests in affordable rental housing on behalf of ABP.
“We look primarily at projects with an appropriate long-term risk-return. It is also important to consider how we can make a difference for people seeking housing, including ABP participants. But as a short-term thinker, you could look at it that way. And yes, in that sense, less competition helps us acquire projects. However, we compete not only with foreign parties, but also with affordable housing for sale. The Affordable Rent Act ensures that we are limited in the rent we can charge for (new) homes in the regulated segment. It also means that we are limited in what we can pay for a house. If the prices of houses for sale continue to rise, then developers have a choice. They can choose to sell us 120 houses at a lower price all at once (as recently announced in project Cartesius in Utrecht, ed.), or they can sell each house separately at a higher price. As soon as the gap between selling to us and selling separately becomes too big, the developer will always go for unit sales. That simply yields a higher return, even though the sale may take a little longer as a result. This is a development that worries me when it comes to fulfilling ABP’s mandate.”

Do you understand the reluctance among foreign investors?
“Yes. Investors in housing benefit from dullness and predictability, and that is not the case in the Netherlands right now. The investment climate around projects is uncertain, due to changing and increasing regulations from The Hague. Rules are being repeatedly changed amid all the ongoing activity. Take the Spring Memorandum. There are now sudden proposals whose consequences for new construction can be drastic, such as freezing social rents. This reduces the leverage of housing corporations to initiate home building. From the perspective of the challenge we have in the Netherlands, which is to build 100,000 homes a year, this is certainly a very bad plan.”

Do those plans also put the brakes on the investments we make on behalf of ABP in building mid-range rental housing?
“ABP would like to continue doing this, provided the projects have an appropriate risk-return profile. We assess risk from three perspectives: planning, construction, and leasing. The latter is fine; if you build and deliver something now, then you are almost certain to rent it out. For construction, we also have the contract price locked in before construction begins. That means no surprises afterwards. We also always choose projects that are already fully licensed. We can build the very next day after signing, so to speak. In short, the risks are reduced to a minimum. Because of that lower risk, we can also accept a correspondingly lower return. But that also depends on having a reliable government. The rental market in the Netherlands is tightly regulated. We have never minded that, as long as we know where we stand. Lately, however, the government has been fickle. For example, we have raised rents on average by inflation plus 1 to 1.5 percent. That percentage is required for maintaining and preserving homes. That increase also fits in well with the Affordable Rent Act. But if they are now suddenly talking about freezing rents, that will impact the feasibility of some of the projects in our pipeline.”

What are some measures that will make the Netherlands attractive again for investment in the housing market?
“I understand that it is very easy to criticize. However, we are well aware that there are other dossiers in the Netherlands besides the housing market that need to be resolved. These also cost money. Just look at the healthcare dossier. However, if I may mention something, reducing the transfer tax from its current rate of 10.4 percent to an internationally accepted rate of 6 percent is a good plan. A further restriction on interest deduction, and bringing it more in line with our neighboring countries, is also sensible. Furthermore, we advocate for attention around the Box-3 discussion. After all, in addition to (international) institutional investors, private investors are also important players in the Dutch rental housing market. We have also long advocated for lowering VAT on new construction. The latter seems a very direct and effective means of stimulating housing construction. It also helps to tackle the stacking of local rules and procedures. For this purpose, the Minister of VRO, Mona Keizer, has launched the program STOER (Scrapping Conflicting and Redundant Requirements and Regulations). This is very good; it can really help.”