Cheshire Ireland, which provides a range of support services to people with both physical and neurological conditions, is seeking to rent properties from private owners on a long-term basis in what it calls an "attractive proposition".

This is being offered under the Department of the Environment-led Social Leasing Initiative which aims to increase the supply of housing. It hopes to do this by creating a long-term lease which gives security of income from an approved housing body (AHB), such as Cluid Housing, Respond and Cheshire Ireland.

The 10- to 20-year lease with an AHB allows it to sublet the property to a social housing tenant where the rent is set at 80 per cent of the market rent and subject to reviews every three to five years.

Ultimately, the AHB is responsible for payment of the rent for the duration of the tenancy irrespective of whether the property is occupied together with all other obligations under the lease including maintenance and registrations.

A property owner would be responsible for any structural repairs, insurance, property tax and management fees for the duration of the lease.

Security of tenure

On expiry of the lease the property would be handed back to the property owner/investor in a similar condition to when it was initially let less any fair wear and tear.

Cheshire Ireland is working in conjunction with other AHBs to provide accommodation under this initiative to a number of its residents who reside in congregated settings. It says the initiative is an attractive proposition for property owners/investors as security of tenure can be obtained at a competitive yield for a long period whilst there is the possibility of asset capital appreciation.

“If you take the example of a property on the market at €375,000 where its market rent is €1,600 per month, we would agree to a lease at 80 per cent of this, or €15,360 a year,” according to Cheshire Ireland.

“On the basis that the property were approved and agreed with an AHB/Cheshire the anticipated gross return available to a potential investor would be approximately 4 per cent assuming an acquisition at the asking price together with legal, agents’ and stamp duty costs.”

We put this proposition to a number of property professionals and all felt, reluctantly given the housing crisis, that it wasn’t attractive enough for private landlords with properties in the capital or commuter counties.So an increase in the supply of housing for social tenants in these areas would not be forthcoming on the above terms.

Institutional investors

However, all the professionals felt it could prove attractive for landlords in secondary locations or, as one agent put it, the “midlands”. Some also said institutional investors might be tempted by the long-term secure rental income.

Ken MacDonald of Hooke & MacDonald believes most landlords would be reluctant to tie themselves into a long lease of 10 to 20 years because, if their circumstances changed and they needed to sell the property in the interim, they would find it difficult to do so because owner-occupiers would not bid for it since they cannot get possession of the property until the lease expires.

“A lease of say seven to nine years would be more attractive with a break clause after four to five years,” he said.

MacDonald also said that, as the rent was at 80 per cent of the market rent, this equated to having a void period of 10 weeks each year for a property let at full market rent.

Standard lettings

“So the perceived advantage of having it let with no void periods is wiped out,” he said. “Standard lettings would usually have a void period of just one to two weeks. The new Central Bank mortgage lending caps are causing existing private tenants to stay in properties for longer periods averaging three to four years and this makes the Social Leasing Initiative less attractive on a comparative basis.”

James Nugent of Lisney said that if a potential landlord was paying market value for a property, then only getting 80 per cent of the market rent for the property “really doesn’t seem to make sense”.

Nugent said the real question was whether a gross yield of 3.96 per cent was sufficiently attractive to encourage investors into the market.

“I think well-advised residential investors could probably do better than this outside of the scheme, although the recent changes ensuring residential rents remain fixed for two years may have a dampening effect on this.”

MacDonald also said the “hostile tax treatment” of suppliers of all types of rental accommodation was “deterring investment” in the sector and is “forcing numerous investors to exit from it”. Private landlords were not treated fairly from a tax viewpoint, he said, as even with mortgage interest relief, the sector was “at a disadvantage to commercial property and other types of business”.

Conor O’Gallagher of JLL said a landlord locking themselves into a very long lease would think “I could miss out” on any potential market rent increases.

“If the long-term lease was agreed at a rent between 90 and 95 per cent of the market rent and was subject to review every two years, then this deal could suit more private landlords. As the deal stands, it’s more likely to suit institutional investors, but the yield is just not attractive enough for your average private investor.”