Three CAs assess the future of retail and residential property
By CA magazine
29 September 2022
Some property prices have reached record highs again this year, but not everyone is invited to the house party, as seen by the social housing crisis and declining high street. We meet three CAs helping to make the sector a more welcoming place for all
Property, as Depression-era US President Franklin D Roosevelt once put it, “is about the safest investment in the world”. As the seemingly ever-increasing number of TV housing shows demonstrates, the UK property market is a place of gravity-defying growth. A recession might be looming, but in March the average property price in London reached £523,666 (UK wide, it’s £278,436) according to government figures, up by almost 10% on the previous year. Interest rates are rising and experts are predicting a slowdown, perhaps even a fall. But property prices have bucked the recessionary trend before, and so far they remain stubbornly high, thanks in part to a shortage of sellers.
There is, of course, a dark side of the boom. Around 37% of UK households don’t own their homes – a situation likely to worsen as the cost-of-living crisis bites. “Generation rent” is locked out of home ownership (rents have increased by 3.2% in the last year according to the Office for National Statistics), while the rise of second homes is causing strife in some parts of the UK, such as Cornwall – where tourist hotspots such as Newquay have 20 times more properties on Airbnb than for long-term rent.
Demand for new homes is outpacing supply in social housing too. A dearth of housing stock has resulted in tens of thousands of people – including many families with children – living in temporary accommodation and placed on ever-bulging waiting lists. Rough sleeping and sofa-surfing have rocketed, with housing charity Shelter reporting a surge in homelessness of 11% in the first three months of the year alone.
Commercial property is facing its own unique set of challenges too. The rise of homeworking has left London with 3sq km of empty offices, while the ongoing decline of the British high street has been hastened by lockdowns.
While FDR declared property to be a safe investment, today it’s FDs ensuring its security. Finance directors and other financial professionals working in property have contributed to the sector’s buoyancy, but they can also expect to play a huge role in addressing some of its problems, whether that’s dealing with the lack of social housing, the UK’s archaic property taxes or the urgent need to environmentally update homes for net zero.
Here, three leading CAs working in the sector explain why playing house with numbers can be more difficult than it seems.
I may be the money man but I know that money is being put to good use
Ken Tudhope CA - Executive Director of Finance, Kingdom Housing Association
Kingdom Housing Association is one of the largest social landlords in Scotland, owning more than 6,000 homes and operating in Fife, Perth and Kinross, Falkirk and Clackmannanshire, as well as a further 1,000 mid-market rental properties through its commercial arm
I spent eight years with the Law Society in Edinburgh, getting off the train at Haymarket and walking past rough sleepers on my way to our plush offices. Working in social housing helps me do something about it. This is probably the worst time we’ve seen economically since the early 1980s with Brexit, the war in Ukraine and the cost-of-living crisis.
At Kingdom we have several active construction sites, but there are challenges in getting materials, both in terms of cost and supply, which slows down the process and means it takes us longer to generate rent to balance the books. I’ve never done more scenario planning in my life! But when people ask “how are we going to deal with this?”, CAs tend to be the cool heads.
There is no doubt next year is going to be a real challenge. Many of us are carrying large amounts of debt – Kingdom will have around £200m in loans at the end of this financial year – and we produce long-term business plans to demonstrate we are on course to repay the loans while maintaining services and affordable rents. We also want to continue to build much-needed housing.
The Scottish government has recently announced its desire for a rent freeze, which may be a sign of things to come; any statutory rent controls will be a further challenge in managing the business and potentially increase the sector’s risk profile in the eyes of lenders.
Kingdom also has a commercial arm that deals with almost 1,000 mid-market rental properties and we keep a close eye on the local market. We’re also currently working with the University of St Andrews on postgraduate accommodation in an area where rent levels are extremely high and people often have to live significant distances away to find affordable homes.
But with mid-market rent, for example, you have to give a tenant three months’ notice of an increase. And landlords are struggling to keep pace, as they only tend to do an increase once a year. That helps to keep the market in check.
In my role I get to apply my CA skills in financial modelling, raising finance, project appraisal and liaising with other specialists, which all contributes towards making the business successful. I was recently involved in negotiations with a life assurance company on a private placement. I’m sure my CA badge was a great help in getting that deal over the line.
But the role isn’t just about crunching numbers - I visit our developments and see first-hand all the great work we are doing in changing people’s lives. In areas of mixed tenure schemes now it is hard to tell the difference between social and private housing. As we know, having a permanent home is a major factor in getting a job or even a bank account – it improves wellbeing. So there is immense job satisfaction. I may be the money man but I know that money is being put to good use.
I knew at once that social housing was the right fit for me
Erica Davidson CA - CEO of Knowes Housing Association
Knowes owns and manages 1,048 properties for social rent and provides homeowner services to around 600 owners in the Faifley community in Clydebank
When I qualified as a CA I was fortunate to obtain a post as Finance Manager for the housing department of a local authority. My remit was to prepare budgets for the housing revenue account and work with the staff in monitoring income and expenditure. That was my first experience of working in social housing and I knew at once that it was the right fit for me.
I felt then – and still do – that the provision of good quality affordable housing is as important to the welfare of our communities as the provision of healthcare. And the two things often work in tandem – so often we can improve the mental and physical health of our tenants when we improve the conditions in which they live.
When I started at Knowes HA in 1998, access to the web, emails and smartphones was obviously nothing like it is now. Over the years we have changed many of our business processes to take advantage of the digital transformation that has swept through our society. But at the end of the day, our customers don’t care so much about how we record and process the information as to when they will be allocated the property they want, how quickly they can get their repairs done, or where they sit in our replacement programme for a new kitchen or bathroom. So some essential aspects of the job have not changed at all!
The biggest challenge facing the sector is the cost-of-living crisis which will affect the ability of many of our customers to pay for their homes. Also, as with other sectors, we are experiencing rapidly rising costs and shortages of labour and materials, with the costs of our repairs and maintenance programmes rising at levels of 10–30%.
In the face of this, we also have to ensure that our rents remain at an affordable level, which can be in conflict with ensuring that we maintain sufficient financial reserves for future repairs and improvement programmes. Access to social housing has always been in high demand – now more than ever – and with a shortage of new build opportunities for us, and a long waiting list of applicants, we are not always able to meet our customers’ aspirations. Many of them are having to wait years for the type of property they need.
On the upside, we have proved resilient over time and are currently in a financially strong position, which should help us weather the difficult few years ahead.
I could see straight away how Sook could revitalise the high street
Constant Strydom CA(SA) - Head of Finance at Sook
Sook is a rent-by-the-hour retail/events space provider, which aims to tackle the problem of empty shops on UK high streets by offering pop-up spaces to businesses looking to make a quick splash
Call it the Great Resignation or post-pandemic burnout, but at the start of 2022 I felt the need to take a year out and spend time with my family in my native South Africa. I made plans to leave my job at EY and composed a story on LinkedIn about how I was ready to take on a brave new world. Then, I got a call from Sarel van Baalen, Sook’s Commercial Director, asking me to join as Head of Finance. The business proposition was so compelling, I couldn’t say no. Stellenbosch had to wait.
Sook works something like this: there are around 58,000 empty stores across the UK right now, a number that’s growing daily. Landlords increasingly want 10-year leases, which is okay if you’re Nike. But SMEs can’t afford to be tied to decade-long leases. Sook works with landlords to help businesses rent empty stores for an amount of time ranging from one hour to several months.
The stores have digital screens on the walls, which can host a brand’s content within seconds. All a business needs to bring is the stock they hope to sell.
I could see straight away how Sook could revitalise the high street. Since joining in April, I’ve been staggered by the variety of our clients: everybody from big brands such as Mastercard to people who want a physical space to sell candles or homemade jewellery. Some of these smaller businesses would love to have a bricks-and-mortar presence, but sadly can’t because of expensive leases and rising business rates.
My job at Sook is analysis-driven and my CA qualification has more than equipped me for this challenge. The technical side of CA training has certainly helped when dealing with leases and employee share options. You need grit and determination in spades to get through your CA studies: it’s a fast-paced qualification that shows your daily responsibilities in finance will never be the same.
Sook has an exhilarating long-term vision, which extends beyond letting empty store space: we also hope to make forays into staffing and storage. We have GDPR-compliant data analytics cameras in our stores which can track the kind of people who visit. For businesses renting these spaces, knowing your customer demographics can be invaluable. We hope eventually to sell these data packages to businesses.
The wider purpose of Sook, however, is to help save the British high street. It’s something that I’m proud and excited to be part of.
