SDC Plugging the Funding Gap with Property Investments.

Oportunitas Ltd  purchased 82 and 84 Leyburne Road Dover Kent CT16 1SH (pictured) for the sum of £810,000 according to the land registry on Dec 21st 2016.

Shepway District Council’s (SDC) monies from central government has been reduced and will continue to fall considerably over the next few years, leading them to find new exotic income streams wherever they can.

SDC have had to use exotic solutions to ease their financial constraints. Purchasing property via SDC’s 100% owned Limited company is one way of achieving income.

Oportunitas Ltd has four directors, none of whom have any direct or relevant experience of being property investors. Neither does SDC.

Oportunitas Ltd bought 15 Grace Hill Folkestone (pictured) the flats above have been rented out, but the commercial space remains empty after 18 months. How much have the taxpayers of Shepway lost in potential rent? Does it show sound financial acumen?

One can understand why SDC has used such a strategy as they are massively constrained in what they can do around council tax – and indeed commercial rates – they are trying to prevent even deeper and more damaging cuts by taking this rather unorthodox measure. SDC may well succeed, but there is a very high risk of bankruptcy which strongly suggest a certain degree of desperation by SDC.

It might be acceptable if the properties (82 -84 Leyburne Rd Dover) was in Shepway as one could say it was regenerating the area. But it is not. What sense does it make when you buy two houses, made up of flats, in the second lowest rental area of Kent according to Savills. Will the property be used to house the people of Shepway, or simply rented out on the open market to all and sundry?

SDC are not alone, other councils such as Eastleigh, Kettering and Maidstone – have also entered this market and this, in turn, has attracted interest from other councils.

In some quarters this has raised concerns that Council’s are speculating in the property market, so much so that Lord Myners tabled a parliamentary question asking the government to confirm how much money the PWLB had lent to local authorities to invest in commercial real estate between 2011 and 2016, and what it was doing to monitor the risk from such investments.

However, the Public Works Loan Board is not required to collect information on the specific reasons that local authorities borrow from it, and so it does not hold information about the amount of lending that has been used for acquisition of commercial real estate

Matthew Oakeshott, an investment manager at Olim Property, said councils were “playing a gigantic game of Monopoly with taxpayers’ cash”,  Other property analysts have said that an economic downturn could see commercial property yields drop, leaving councils; such as ours, heavily exposed.

The difficulty for financially stretched councils such as SDC  means this is quite different territory for SDC in terms of risk profile. SDC is exposed to a new credit risk because the revenues from the properties are inherently uncertain. In their investment in the housing market, SDC also faces the same early-stage construction risks as private developers. On completion, the properties are exposed to market fluctuations.

The continuing investment into property concerns us all at the Shepwayvox team, as SDC have no relevant experience in property investment and what with our ex failed double glazing salesman four times over at the helm, are our concerns justified? We’ll leave you to decide that.

The Shepwayvox Team.