Councils playing the property market face crackdown

October 28 2017 | by Rhiannon Bury @ The Telegraph

Councils are braced for a Budget crackdown on their exploits in the commercial property market, amid mounting Government concern that bad investments could trigger a funding crunch for local services.

The Chancellor is expected to unveil tough new rules on council investing next month. Whitehall officials fear that attempts by councils to bolster their income by ploughing borrowed millions into office developments and shopping centres have put their finances at risk.
A crash in property values could plunge stretched local authority balance sheets into crisis.

Councils have been drawn into the commercial property market in recent years to replace funding lost to cuts. They can borrow from the Public Works Loan Board (PWLB) at relatively low rates of interest, currently around 2pc, using the money to purchase property with a 5pc or 6pc yield.
The PWLB, which is part of the Treasury, does ask authorities to show their investment plans are affordable, prudent and sustainable, but does not require equity to be put into deals by councils. As a result, spending on commercial property by authorities in 2016 topped £1bn for the first time.

Last year Spelthorne Borough Council bought BP’s International Centre for Business at its Sunbury-on-Thames campus for around £350m. The Local Government Association said the deals were a vital way to bridge a growing funding gap.

http://www.telegraph.co.uk/business/2017/10/28/councils-playing-property-market-face-crackdown/