We look at the effect the downturn in the housing market ishaving on RPs' accounts As property sales plummet, what measures can RPs take tominimise the impact? The global credit crunch has hit the UK property market hard,with Nationwide and Halifax stating that house prices have fallennearly 11% in the past year. Lack of mortgage availability and afall in consumer confidence has led to a downturn in the housingmarket, the effects of which could be far worse than thoseencountered in the 1990s. The demise of Lehman Brothers, HBOS andBradford & Bingley has also added to the misery. Many larger registered providers (RPs) are increasinglyfinancially dependent on the sale of property (via outright sale orshared-ownership) to make their business models work, and untilrecently, few RPs had assumed that there would be any downturn intheir anticipated revenue from property sales. Predicted effect on RP accounts Property sales The sector's reliance on property sales is clearlyillustrated in the global accounts published by the HousingCorporation, which show an increasing deficit before tax andproperty sales for the years 2005 to 2007. In 2007 the surplusgenerated from the sale of properties was £542m, compared tothe overall surplus before tax, £270m. The balance sheet RPs have been developing to a greater extent over the last fewyears and are likely to be holding properties on the balance sheetthat have experienced impairment. In addition, RPs trying to sell properties, either throughshared-ownership, HomeBuy or outright sale, will be holdingsignificant amounts of property on the balance sheet as currentassets. These assets are valued in the accounts at the lower ofcost and net realisable value, and RPs may need to make significantwrite-downs to these assets to reflect the reduction in theachievable selling price. Also, contractors are increasingly facingfinancial difficulties and taking longer than planned to completedevelopments ? making matters worse in a market whereprices are continuing to drop. The global accounts in 2008 and 2009 The 2008 global accounts are yet to be published, so we havemade some simplistic assumptions to show how the 2008 and 2009global accounts might appear when taking into account the effectsof the slowdown, impairment of housing stock and increased interestrates. The assumptions we have used for 2008 are: an increase in rental income of retail price index (RPI) of0.5% plus 3% for growth an increase in operating costs of RPI of 2% plus 3% forgrowth...
RPs Suffering In The Property Market Crash
|Author:||Ms Emma Brett|
|Profession:||Smith & Williamson|
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