Ad­verse pol­icy changes will weigh on English hous­ing as­so­ci­a­tions af­ter 2016

Financial Mirror (Cyprus) - - FRONT PAGE -

English Hous­ing As­so­ci­a­tions’ (HAs) fi­nan­cial per­for­mance will likely peak next year be­fore ad­verse pol­icy changes in­tro­duced in 2015 be­gin to bite from 2017 on­wards, Moody’s Pub­lic Sec­tor Europe said in a re­port, not­ing that its 2016 out­look for the sec­tor is neg­a­tive.

The pol­icy en­vi­ron­ment re­mains chal­leng­ing for HAs, which among other fac­tors will re­sult in a de­cline in so­cial rental in­come for four years from April 2016.

“Ad­verse pol­icy changes will re­sult in erod­ing mar­gins and in­ter­est cov­er­age ra­tios for English Hous­ing As­so­ci­a­tions from 2017 on­wards,” said Amir Gir­gis, an as­so­ciate an­a­lyst at Moody’s.

“HAs will look to off­set in­come lost as a re­sult of the rent cut by cut­ting costs and slow­ing their cap­i­tal ex­pen­di­ture pro­grams. They will likely also ac­cel­er­ate mar­ket sales ex­po­sure for new builds un­der a hous­ing pol­icy that is more sup­port­ive of home own­er­ship. The im­pact of th­ese changes on their bal­ance sheets will de­pend on their strat­egy to mit­i­gate the im­pact of ad­verse pol­icy changes. For those un­able or un­will­ing to ad­just, credit qual­ity could start to di­verge.”

The rat­ing agency expects the sec­tor’s me­dian op­er­at­ing mar­gin to fall by 2-3 per­cent­age points to be­low 30% by 2017, and to re­main at that level there­after.

Re­duced prof­itabil­ity will erode in­ter­est cover ra­tios from 2017, Moody’s said, while mar­ket sales re­place lower risk so­cial hous­ing rentals and are ex­pected to make up ap­prox­i­mately 25% of turnover by 2019.

As such, the sec­tor will be­come more re­liant on the hous­ing mar­ket re­main­ing buoy­ant. Any mod­er­a­tion or re­ver­sal in house prices would ex­ert pres­sure on cash flow from oper­a­tions.

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