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Investor pools £400m war chest to snap up affordable housing deals

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A major equity investor has created a £400 million war chest to buy up developer’s affordable homes as interest from housing associations wanes

Cheyne Social Property Impact Fund told the AJ’s sister title Construction News it was already in the running for six ‘section 106 assets’ in London and the North West, with a total value of around £45 million.

The fund’s surprise entry into the market comes after the chancellor introduced measures in July that hit social landlords’ finances – including a 1 per cent cut to social rents.

Cheyne’s portfolio manager and partner Shamez Alibhai said he had been approached by councils, housing associations and private housebuilders to step in and invest following the summer budget. Under some planning conditions developers are not permitted to start building unless a buyer for the affordable element has been agreed.

‘The July 8 budget has put pressure on housing associations’ budgets,’ he said. “As a consequence their appetite for section 106 assets has diminished.

‘Developers have the need for a section 106 to dispose of those units and they historically have sold those units to a housing association,” he added.

‘We are working with associations to buy section 106 assets and make those homes available for the associations and councils. We buy them as an asset and lease them back to the council or housing association.’

Cheyne is looking to invest up to £400 million over the next three years in section 106 planning deals, out of a total of £900 million it plans to invest in housing projects across the UK.

It has already committed £70 million to other housing projects and has a further £250 million of investment in the pipeline.

Without its investment, Alibhai said, the housing schemes it is bidding for would be held up or have their affordable housing element cut.

‘There is quite a dramatic need for affordable housing provisions and a risk of schemes not being viable at all or having much less social or affordable housing,’ he said.

Cheyne hopes to have purchased its first section 106 asset before Christmas.

Ian Graham, head of law firm Trowers & Hamlins, said he was not surprised at the entry of new investors in the market for section 106 assets.

‘We have had people come and see us, saying they would like to invest in section 106 housing,’ he said. ‘We have said that legally there is no requirement that it has to be held by a registered provider.

‘Councils can achieve what they want to achieve in terms of control through the terms of the section 106 agreement.’

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