English Hous­ing As­so­ci­a­tions’ fi­nances un­der pres­sure

Financial Mirror (Cyprus) - - FRONT PAGE -

English Hous­ing As­so­ci­a­tions could strug­gle to main­tain their cur­rent fi­nan­cial per­for­mance af­ter re­cent gov­ern­ment pol­icy changes made their op­er­at­ing en­vi­ron­ment more chal­leng­ing, Moody’s said in a re­port.

“The cu­mu­la­tive im­pact of re­cent changes in gov­ern­ment pol­icy have cre­ated a more dif­fi­cult op­er­at­ing en­vi­ron­ment for hous­ing as­so­ci­a­tions,” said Roshana Arasarat­nam, Vice Pres­i­dent - Se­nior Credit Of­fi­cer, and au­thor of the re­port. “The sec­tor’s over­all credit pro­file could de­te­ri­o­rate if hous­ing as­so­ci­a­tions are un­able to main­tain their cur­rent fi­nan­cial pro­jec­tions.”

Moody’s re­port comes af­ter the UK gov­ern­ment’s 8 July an­nounce­ment of a 1% an­nual re­duc­tion in so­cial hous­ing rent. On­go­ing wel­fare re­forms and the ex­ten­sion of the “Right to Buy” scheme, where hous­ing as­so­ci­a­tions’ ten­ants could get the chance to buy their hous­ing as­so­ci­a­tion home at a dis­count, add to the un­cer­tain out­look.

Moody’s fore­casts that the rent re­duc­tion means hous­ing as­so­ci­a­tions’ turnover will grow more slowly than an­tic­i­pated; and projects an av­er­age loss of 7% of turnover, cu­mu­la­tively over the next four years, from the pro­posed rent re­duc­tions. In­come from new hous­ing will off­set the nom­i­nal cut in rents, but rental in­come will grow at a much slower pace in fu­ture.

Hous­ing as­so­ci­a­tions’ prop­erty sales could form a higher share of their turnover as so­cial hous­ing rev­enue growth slows. The per­cent­age of the as­so­ci­a­tions’ rev­enue gained from so­cial hous­ing could fall to 67% in 2017 from 76% in 2014. Me­dian op­er­at­ing mar­gins could also fall to 26% by 2019 from 30% in 2014 as in­creas­ing costs ex­ceed the growth in turnover.

The re­cent pol­icy changes could lead to the hous­ing as­so­ci­a­tions’ erod­ing their cash re­serves more quickly than ex­pected, re­duc­ing their short-term liq­uid­ity.

Hous­ing as­so­ci­a­tions may tap un­drawn credit fa­cil­i­ties, which would in­crease an­tic­i­pated debt lev­els. At the same time, planned cap­i­tal spend­ing on new and ex­ist­ing homes may be post­poned or scaled back, re­duc­ing the need for new debt and lim­it­ing the im­pact on their bal­ance sheets.

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