🏡 Why Section 106 Shared Ownership is Gaining Momentum with RPs and Institutional Buyers
As pressure to deliver mixed-tenure housing intensifies, many developers are turning to Section 106 shared ownership units not just as a planning obligation — but as a strategic opportunity. Shared ownership offers developers a route to de-risk schemes early, while providing long-term value for Registered Providers (RPs) and increasingly, institutional investors seeking stable, inflation-linked returns.
This article breaks down why shared ownership under Section 106 is profitable, who’s buying, and how the deals are structured.
📜 What Is Section 106 Shared Ownership?
Section 106 agreements are planning obligations requiring developers to include affordable housing in new schemes. Shared ownership is one of the most common tenures included, often alongside affordable rent or social rent.
In a shared ownership model:
- The occupier buys a share (typically 25–75%) of the property
- The RP or fund retains the unsold equity
- The occupier pays rent (usually around 2.75% of the value of the unsold equity)
- Over time, the occupier can “staircase” to full ownership
💸 Why Shared Ownership Is Profitable for RPs and Funds
1. Dual Income Streams
RPs and investors benefit from:
- Initial capital receipts from the sale of the first share
- Ongoing rental income on the unsold portion
This creates a blend of upfront capital return and long-term indexed income — an ideal mix for cash flow and asset backing.
2. Capital Growth Upside
- When residents “staircase,” the RP or fund sells the remaining share — often at a higher value than at initial acquisition.
- This unlocks capital appreciation over time, delivering IRR uplift in addition to rental income.
3. Low Void Risk
- Shared owners have “skin in the game,” reducing turnover and arrears
- In most cases, void rates are near zero, unlike general needs or affordable rent units
4. Regulatory and Funding Support
- Shared ownership units are eligible for grant funding (via Homes England or the GLA), allowing RPs to buy at higher values
- Institutional funds increasingly accept the regulated, low-risk profile of this product
🧱 Why It Works for Developers
Developers can use shared ownership units to:
- De-risk early-stage cash flow via forward sale or forward funding
- Meet planning obligations without compromising overall margins
- Partner with buyers who will commit off-plan, improving viability
🔧 How Are Section 106 Shared Ownership Deals Structured?
| Element | Structure |
|---|---|
| Forward Sale | Developer delivers completed units to an RP or fund at a pre-agreed price. |
| Forward Funding | RP/fund acquires land interest and funds construction via staged payments. Developer earns a development margin on delivery. |
| Hybrid Models | Sometimes, institutional capital partners with an RP, with the RP managing the asset while the fund retains ownership. |
💼 In all structures, the developer avoids marketing risk and exits the affordable obligation early — helping fund or unlock the private-sale portion of the scheme.
📊 Example: Developer Selling 20 Shared Ownership Units
| Metric | Value |
|---|---|
| Average full market value | £300,000 |
| Discounted value under s106 (shared ownership) | £240,000 |
| RP/funder buys 20 units | £4.8M forward purchase |
| Developer profit | Baked into the agreed sale price or claimed as build margin |
| RP yield | ~3.5–4.5% net on retained equity, with upside on staircasing |
🧠 Why Institutional Capital Is Now Entering the Space
Long-income investors are increasingly backing shared ownership because:
- It’s government-backed, inflation-linked income
- Risk of rent arrears and voids is very low
- Tenure stability appeals to ESG mandates
- Deals can be scaled via platforms or RP partnerships
🤝 Let’s Talk
If you’re delivering a residential scheme with shared ownership obligations, there’s a strong appetite in the market right now for forward-funded or forward-sold transactions — and the right structure can release capital, reduce delivery risk, and enhance returns.
If you’d like to explore this topic further, speak to one of our specialist team. We can assist you with the sale or forward funding of your Section 106 shared ownership units.
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