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Social Housing Valuation

Subsidised housing valuation: valuing a heavily regulated asset

Social housing is highly regulated which means that it is not a classic income generating asset. The capping of rents limits the rental return of this asset compared to others. On the other hand, since it meets a fundamental need, social housing is resilient in the event of an economic crisis.

Government incentives and relatively low interest rates (PLS and PLI loans) contribute to current growth in the number of subsidised housing units. From a regulatory point of view, social housing is sold mainly in blocks and constitutes a market that remains narrow (less than 10,000 units sold per year in a global market of more than 800,000 units sold).

  • 553,811

    New social housing units financed over the past five years in mainland France

  • 130,316

    New housing units financed in 2016, including French Overseas Departments

  • 80 %

    Of French people whose resources are below the ceiling for eligibility for social housing

2016 - BNP Paribas Real Estate Valuation France

Our expert’s point of view

GUILLAUME BONIFACE

Real estate expert

What are the special features of social housing assets?

Subsidised or social housing units are highly regulated real estate assets. Approved by the state and financed with public funds, they are subject to an allocation procedure controlled by the public authority. Their rent is capped. They welcome low-income tenants that are eligible for the APL. Tenants who respect their lease have a right to maintain the premises for an unlimited period of time. 

 

What are the market trends?

The SUR law of December 13th, 2000 requires urban municipalities with more than 3,500 inhabitants (1,500 in Île-de-France) and municipalities that are members of an urban area with more than 50,000 inhabitants to create social housing units until they account for 20 to 30% of the total number of residences.

In March 2017, the fifth three-year review of the Solidarity and Urban Renewal (SUR) law, which measures the creation of social housing in the 1,165 municipalities subject to this law in France, announced that the programme had produced 187,425 social housing units since 2014, surpassing the target number of 174,000 housing units and marking a 34% increase compared to the previous review (over the period from 2011-2013). Subsidised housing is therefore developing rapidly.

 

What are investors' expectations of this asset?

Investor interest in social housing is primarily based on income security (high occupancy rate and high unmet demand). Private investors are also interested in the potential for rental re-valuation at the end of the agreement when exit from the social security system is possible. In addition, assets in the ordinary legal regime will see an increase in their return.  

Investors are also interested in acquiring bare ownership of subsidised housing units with the prospect of an exit from the scheme at the end of the agreement.

What are the main criteria for valuing subsidised housing ?

Recoverable/non-recoverable expenses, turnover rate, unpaid balances, annual refurbishment cost for housing units are among criteria to be taken into account when valuing a social/subsidised residential asset.

Title deed with a reference to easements

Checking whether the plot is located on a site reserved for social housing

Accommodation category PLA, PLUS, PLI, PAS

Types of loans granted for financing

Number of lots per typology / size

T1, T2, T3, T4, T5, and corresponding surfaces

Rent Accrued

In the long run and capped, it depends on the geographical area and the type of housing

Structural vacancy rate

Expulsions in progress or apartments under renovation

The duration of the social housing agreement and, above all, the possibilities of exit at the end of the agreement are essential elements in determining the valuation methodologies to be applied to subsidised housing. In the case of a possible exit from the social security scheme at the end of the agreement, the valuer considers a value corresponding to the free market, then deducts the loss of value corresponding to the loss of rental income (in relation to the free market rent) over the remaining period until the possible removal of the rent ceiling. They also consider construction and vacancy costs.

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