Friday, 12 October 2018

Property Acquisitions - It's all about the extras

Over the last year I have been reviewing the properties acquired by Barnet Group. The idea of the acquisitions is sound, to buy properties for people who would otherwise be placed in rented temporary accommodation.  Last year Barnet decided that it would be cheaper to buy those properties in Peterborough, something I blogged about here last year. However they failed to agree this strategy with Peterborough Council who felt that this was putting a strain on their own housing market.
Part of the rationale behind this strategy is that the properties would be acquired and refurbished to a good standard. The cost of this refurbishment was set out in a report to Barnet Cllrs in April 2017 which you can read in full here.   Critically, they include the table below:

As you can see in the table the best case scenario for refurbishment costs and fees was £23,669 and worst case £31,890.  Barnet Homes said that the other costs include:
  • Management of the purchasing process;
  • Agent fees;
  • Survey costs;
  • Independent valuation costs;
  • Legal fees;
  • Costs associated with lease extensions;
  • Refurbishment cost;
  • Management to the refurbishment process. 

In 2017 Barnet Homes acquired a number of properties. I have taken the details and figures from a number of Council Delegated Powers Reports (DPR) for the 42 properties I know about. All I have done is collate that data into a table. Set out below is a table showing the purchases in 2017.


From the table above you can see that the average refurbishment cost is £45,796 which is 43.6% above the worst case scenario. I did raise this with Barnet Homes but they simply said:

"Many of the properties require extensive refurbishment to get them up to the Barnet Homes standard. This can include works to the structure of the property such as new doors and windows, plus works to roofs and guttering as well as asbestos surveys and consequent removal, new heating systems, kitchens, bathrooms, and redecoration". 

My argument is that if properties need that much work then that should be reflected in the purchase price or maybe you should buy different properties especially if these works take a long time to carry out. Also if you are buying this many properties you would have a team to manage this process and have agreed suppliers of kitchens and bathrooms at a discounted price.

Jump forward to 2018 and 77 more properties are being purchased closer to, or in, Barnet. Set out below are details of the properties acquired.


As you can see from the table above the additional costs are now averaging £56,512.  This was explained to me that it automatically includes a lease extension allowance of £15,000 where it is a flat and that some of the properties have an extra bedroom and that adds to the refurbishment costs.  What is troubling is how so many properties can have such a huge additional cost of over £60,000. I did ask about the property that had nearly £80,000 of additional costs on a property costing £315,000 but I was told that this sale has now been discontinued. 

There is a degree of irony as many of the 2018 properties are ex local authority properties. Indeed, at least one property is a former Barnet council house previously sold under right to buy. I googled Zoopla and found interiors of the property from 2013 when it was offered for rent.  You can see them here. OK, it is 5 years on but it is hard to see how it is necessary to spend £37,950 especially as Barnet Council own the freehold.

At the Financial Management and Contracts committee this week I mentioned these costs and asked who was checking. Cllr John Marshall challenged me and asked if I understood why these properties were purchased. Yes of course I do and I welcome the principle of what is being done especially as the latest crop of properties are much closer or in our own community. My problem is who is checking all these extra costs which on the face of it seem excessive and much greater than councillors were led to believe when they signed up to this strategy. So far the extra costs are just over £6 million compared to the best case estimate of  £2.8 million and a worst case scenario of  £3.8 million. That shortfall (compared to the worst case scenario) of £2.2 million could pay for  90+  full time care support staff, or is the equivalent of all the savings from the decimated library service cuts.

Barnet are focused on cutting budgets but I worry that they don't pay enough attention to controlling  costs.