Private Equity and Home Ownership: Moral Hazard? | property owner


Investors have a responsibility to minimize the social impact, as private equity funds’ growing involvement in multifamily wealth could have negative social impacts, a prominent real estate investor has warned.

“I see private equity funds getting into multifamily housing because of the supply/demand imbalance: this presents a great opportunity to increase rents dramatically in the short term. But there is a responsibility on a societal level. It’s a fine line to walk,” Robert-Jan Foortse, Head of European Real Estate at APG, told AsianInvestor.

Foortse said increasing involvement from private equity funds would likely increase volatility in a sector that APG, like other investors, has traditionally been drawn to for its low volatility.

“Institutional investors like us – European pension funds and sovereign wealth funds – like to invest in apartment buildings because they represent a low risk compared to office or retail properties. Part of this comes from its low volatility. Low initial yields and modest growth mean the return is low but predictable,” he said.

Earlier this month, head of private real estate for Asia Graeme Torre said AsianInvestor that the company was looking to increase its allocations to Asian real estate, including multifamily housing, which is APG’s largest sector allocation in Asia alongside logistics.


APG mainly invests in the lower and middle price segment of the private apartment building market. Foortse said there was a social benefit in limiting rent increases in this segment and giving key workers priority access to these homes.

Private equity funds in Asia are increasingly investing in the region’s growing multi-family sector. On May 31, Gaw Capital, the Hong Kong-based private equity firm specializing in real estate, announced that a managed account it operates for the Qatar Investment Authority (QIA), a portfolio of 32 multi-family houses in Tokyo and others major cities in Japan for an undisclosed sum to bring the portfolio to $800 million.

Since early 2021, however, rent increases in major cities around the world have drawn attention to dwindling housing affordability for many workers.

In April, housing campaigner Leilani Farha, UN special rapporteur on the right to housing by 2020, said AsianInvestor that private equity’s focus on cutting costs and increasing returns made them socially unfit owners of multi-family homes, particularly affordable housing. Since 2019, Farha has campaigned against private equity funds buying affordable housing in the US and Europe.


APG was among the leading Dutch real estate investors that, in coordination with the National Association of Real Estate Investors (IBVN) and the government ministry responsible for housing, have limited rent increases for private rental apartments to 3.3% this year.

Such rent caps could limit the attractiveness of rental housing for private equity investors, Foortse noted in a blog on APG’s website in April, writing:

“Limited rent increases reduce competition because private equity firms that want to increase rents as much as possible in a short period of time lose interest. This relieves the market and prices don’t go through the roof,” he wrote.

But Foortse said it’s unlikely APG will voluntarily cap rent increases in its other markets, including Asia, where similar industry-wide initiatives aren’t in place. “In the other countries, we are a small investor with limited impact. What’s the point of being the only one in the market to do that?” he said, adding that such an action would have a negative impact on financial returns with no positive social impact.


Research on private equity real estate funds in Asia shows that those with strong ESG performance tend to offer higher investor returns. A recent study by Jeslyn Ng, a student at the National University of Singapore, found a positive correlation between ESG scores and the performance of private equity real estate funds in the Asia-Pacific region. Of the three factors, environmental was the most strongly associated with outperformance.

The results, published on the Global Real Estate Sustainability Benchmark (GRESB) website in January, found that five of seven previous academic studies examining the link between ESG ratings and private equity real estate fund performance found ESG associated with stronger performance and two found no impact on performance compared to peer funds.

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