Investor view: counter-cyclicality of sector ‘diluted’ by market sales

News09 May 2019Sarah Williams

Investors are focused on housing association credit ratings, as the ramping-up of sales risk has impacted the sector’s insulation from market cycles, an investment director has suggested.

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Speaking on a panel at the Social Housing Finance Conference in London today, Fiona Dickinson, investment director at Aberdeen Standard Investments, said that with the counter-cyclicality of the housing association sector “a little bit diluted” by sales risk, bond agencies are very focused on credit ratings.

This is particularly the case for insurance sector clients, she said, with a large part of the sterling fixed-rate market backed by an insurance base, at around 60 per cent of investment in bonds.

“[From a credit perspective] at what point does a housing association convert to house builder?” she asked.

She added that the differentiation between an A- and an A+ rated issue in terms of spreads is “probably as wide as it has been”, and that investors were mindful of the impact that any UK sovereign downgrade would have on sector ratings.

Henrietta Podd, director at JCRA UK, said that the “North-South divide” on pricing had been reversed. Whereas in the past, housing associations based in London and the South East might have had benefited from strong credit ratings to achieve lower pricing, concern over sales risk has turned this on its head, she said.

Eilidh Mactaggart, managing director at MetLife Investments, said: “We are a little bit nervous if an HA hasn’t got a track record in market sales.”

She said that, on the subject of Brexit, she has needed to reassure US investors that Brexit and social housing are “not intuitively linked”.

The comments come as research launched at the conference this morning by Savills found that the sector is “more vulnerable than ever” to housing market fluctuations.