Jemma Forte: Welcome to this property and finance special with me, Jemma Forte. We’re here today at the London Stock Exchange studios in the heart of the city of London, for our monthly debate on issues related to property and finance. The clue is in the title. With us today we have some of the countries leading professional industry experts, who were invited to share their views, unreservedly I hope, on all subjects property and finance related.
Now it’s time for me to welcome to the London Stock Exchange studios our guests for today. We have Piragash Sivanesan, Paul Mahoney and Tony Gimple. Welcome gents, great to see you all here today. Thanks so much for coming in. In today’s program we’re going to be getting the views of our panelist on subjects that include the following; legislation against rogue landlords, or at least attempts to legislate, what happens when property investments go wrong, and how we can meet the moral requirement to provide social housing.
Plus crowd funding, is it right for property investors? Is it a fad, or is it here to stay? But first, as you may have seen, The Generation Game is back on TV. They will literally rehash anything now, won’t they? But in the property industry, the generation game has never gone away. But how big a role does each generation have in shaping the world of property ownership? So Piragash, I’m going to start with you on this one. What do you think?
Piragash S: I think the generation game has massively shifted. I think if we look at generations, let’s break them down into three units if you like. There’s those that aren’t even thinking ownership. They’re young children, maybe people at university. Then there are those that used to be thinking about ownership from 22 to your later 30s. Then there are those that are very much home owners. Let’s call them the baby boomers if you like, that are 45 onwards into retirement. I think each of those shape it differently.
I think the thing that we’ve got to think about is generationally, how important is property ownership. In the UK, we’re all obsessed. We’re all obsessed with property. It’s very much a thing that everyone feels they have an absolute right to. But of course in continental Europe and in other parts of the world, home ownership is not necessarily the absolute, and the only way in which wealth is created.
For those that are young, what are the options that are open to them? Well, it’s very much about savings. The government has made certain steps to help people that are young, whether it’s the ISAs that are available in terms of saving. Specifically they’ve created ISAs to help you for your deposit. Also, when we start looking at that middle unit, the people who used to want to buy a house immediately, but now actually have to pay off their student loans … I heard an interesting statistic, which is that almost two million people would consider saving for a deposit by giving up health food, which-
Jemma Forte: Wow.
Piragash S: … it’s staggering in many ways, but it’s-
Jemma Forte: You’d have a house, but you might die of a heart attack.
Piragash S: Absolutely. It’s an impression of how difficult-
Jemma Forte: How much it means to people, and I think you have really hit on something there. It is incredibly unfair if you like, that the younger generation are looking to how good previous generations had it. You got a job pretty much for life. You got a pension. It was a given that if you worked hard, you would accelerate up the ladder, and you would own your home. That just isn’t a possibility for people now. But that is going to be a [inaudible 00:03:52] because we’re not European in terms of how the Italians view owning and renting. It’s much more common to never own your own property.
Piragash S: I think the other thing is it’s not all rosy for those people that are homeowners, because actually, they’re the guys with all the assets. I think one of the really interesting things is that people used to look at the bank of mom and dad. But of course, it’s become incredibly institutionalized now, so whether you go to Barclays or Post Office, or any of these types of lenders, they’ve all got products now which actually rely on bank of mom and dad. You send your son or daughter in fact to go and get a mortgage. They come back and say, “I’ve been accepted, but by the way, I now need a guarantee.” That places a huge pressure-
Jemma Forte: And then do you get checked out to be that guarantor [crosstalk 00:04:39]-
Piragash S: Absolutely. You would still need to be checked out. But also, a lot of these baby boomers are looking at reducing pensions, and they’re also in an environment where it’s not so much about the asset wealth. They’ve not got to make that liquid. They’ve got to somehow get cash, in order to pay for their old age, and in sickness. I think there are issues with property across the piece for everyone.
I think that lenders and government are trying their best. We’re getting mortgages, if you’re young at 25, you can get mortgages at 35, 40 years now. That’s an attempt by the financial institutions to make it more affordable. Governments are putting help to buy in to help, again, people to get on the property ladder. That’s without even talking about real property wealth, which is beyond your first home, so I think there’s a lot to debate here.
Jemma Forte: Yeah.
Paul Mahoney: There’s also a shift in preference [inaudible 00:05:33] almost in contrast to that idea of it being so important to own, is that generally the younger generation now, they don’t want to live out in the villages and the towns, without the facilities, amenities, the infrastructure. They want to live centrally with the bars, restaurants, cafes at their fingertips, and also employment at their fingertips, not really wanting to travel to work anymore. That obviously makes things even more difficult, because you’re going to more expensive areas, where property is more limited.
I supposed it’s typical of millennials almost, wanting everything at once but … Something that it causing it is a term I heard the other day was rent-vestors. More and more people are continuing to rent where they’re comfortable to live, especially so in London, and investing in property in areas where they can afford to invest, and where yields might be higher. So they’re still wanting to utilize their money for the purpose of property, but they can’t afford the one million pound two bed in-
Jemma Forte: [crosstalk 00:06:39]-
Paul Mahoney: … London where they want to live. But they can afford the two bedroom flat in Manchester for 200 grand, for example. So there’s a lot of that happening at the moment as well.
Jemma Forte: That makes sense, because I mean as you say, sometimes the millennials I feel get a bit of an unfair bashing, because actually looking at the difference between was younger and you could put a very small deposit down and afford a flat. I don’t think anybody wants to travel three hours to go to work and be young and live in a retirement village. It kind of is difficult. I think it’s changed things culturally to the point of attitudes completely, which is why now they say that generation would prefer to put their money into experiences, into the now, the traveling, because they just see it as I could save, and save, and save, and save, and I’m still not going to have a deposit in five years time. It’s hard.
Tony Gimple: But there is an unexpected outcome with bank of mom and dad. Parents are passing down their money during their lives, as opposed to waiting-
Jemma Forte: Rather than when they die, yeah.
Tony Gimple: Correct, so that actually saves you inheritance tax, and you get the warm cuddly feeling of the kids saying, “Thank you, you’ve helped me on my way.”
Jemma Forte: What are the rules around that though, because you can only give away so much can you, as a gift?
Tony Gimple: Gifts from income, excess income, effectively you can give away as much as you like. As long as it doesn’t affect your lifestyle, and you can show a normal pattern of expenditure.
Jemma Forte: Don’t get any ideas kids.
Tony Gimple: If you give away capital, it’s a different matter. There are seven year rule, potential exempt transfers, a much more complex subject. But if you’re giving it out of income, which is how I helped my son, it’s inheritance tax friendly, gets him on the ladder, as long as he uses it [crosstalk 00:08:17]-
Jemma Forte: Then what’s going to happen to the next generation? Yes, it’s all right for the baby boomers who can manipulate things a bit, try and find ways to free up the cash that they have got, et cetera, as you were talking about. But it will be interesting to see what happens when the bank of mom and dad have passed on. They’ve helped as much as they can. Then what? I think something is going to have to change at some point-
Paul Mahoney: [crosstalk 00:08:40] wealth has to trickle down at some point, doesn’t it?
Jemma Forte: Yeah. Yeah-
Paul Mahoney: You can’t really take your money to your grave.
Jemma Forte: No, and out of interest actually, because I know you split your time between Australia and London, what was the culture like there?
Paul Mahoney: Well, there’s no inheritance tax in Australia-
Jemma Forte: Is there not?
Paul Mahoney: … so I think Australia has a slightly less attitude towards taxing the wealthy, as much as the UK does. There’s no inheritance tax, so you can pass away, and pass on your assets, and not be taxed on them.
Jemma Forte: Oh, okay, interesting.
Piragash S: I think I-
Jemma Forte: One last point Piragash-
Piragash S: Yeah, I would just add that for the younger generation, they may just have to look at it differently. When we look at the companies that have really come out of nowhere, whether it’s Uber that actually don’t own any taxis, whether it’s Airbnb that are actually a big hotel chain that don’t actually own any hotels-
Jemma Forte: That’s so interesting. Yeah, Bitcoin-
Piragash S: Exactly-
Jemma Forte: … money that’s not money.
Piragash S: So there may be ways of them to get exposure to property without necessarily buying whole properties. That may be the way in which they actually owning a slice of property.
Jemma Forte: Yeah, and very interesting what you were saying about, what was the term you used, rent-
Paul Mahoney: Rent-vestors-
Jemma Forte: Rent-vestors, not [crosstalk 00:09:47]-
Paul Mahoney: … so people that continue to rent, and then invest-
Jemma Forte: … invest, yeah. No, I think that makes sense as well, just being a little bit more open minded about what you could do, and a little bit more creative possibly.
Paul Mahoney: Definitely in creating [inaudible 00:09:57]
Jemma Forte: Okay gents, we need to move on now to our next subject, which is about property crowd funding. Now Paul, would you say this crowd funding, which has really hit the headlines in the last few years or so, is it a fad? Is it here to stay?
Paul Mahoney: I’d say it’s definitely here to stay. There is a very broad spectrum of crowd funding out there. There are some of the bigger guys who seem to be doing it reasonably well. There is a lot of smaller crowd funding operations out there that I’d be very cautious of-
Jemma Forte: [crosstalk 00:10:30]-
Paul Mahoney: There’s also crowd funding associated with a very broad range of different types of assets and activities. For example, you have the bigger guys, which are generally doing direct residential property ownership, and letting them out on a buy-to-let basis. The due diligence you’d want to be doing on that is actually understanding the asset they’re buying. Obviously these guys have a vested interest to make the things that they’re buying look fantastic, because that’s what they’re selling. Although they’re managing it on your behalf, unless they sell it to their hundred thousand investors for example, it doesn’t get funded. So you need to look a bit deeper and make sure you actually value the asset they’re buying.
Some of them do it with cash. Some of them have now started doing it with leverage, which is really one of the major benefits of property investment in the first place, so you need to consider that.
Jemma Forte: Is this becoming so popular because of what we were talking about previously? [crosstalk 00:11:27]-
Paul Mahoney: I suppose so-
Jemma Forte: … an option to-
Paul Mahoney: … on the basis that you can invest 50 or 100 pounds into a 500,000 pound flat in London. I suppose part of it is that nice feeling that you can actually now do that.
Jemma Forte: Yeah, I own a brick. You see that big house? Two bricks.
Paul Mahoney: I suppose the concern is, what actual benefit is there going to be for that, because obviously there’s lots of fees and things involved in general. The ones that I’ve seen that I’d be concerned about is some crowd funding operations that fund developments, and often to quite a high loan to value ratio, where the people involved have very little skin in the game. That’s always a big concern.
Jemma Forte: Is it unregulated at the moment? As things stand, there’s no regulatory bodies that you can-
Paul Mahoney: There is a requirement. Unless you’re doing it with just your friends, there is a requirement to be regulated. But so far as the over site once you are regulated, so far as the over site on what you’re actually doing with that crowd funding, to be honest, I’m not completely [inaudible 00:12:29] but from some of the things I’ve seen, it would be a little bit concerning. What I’m talking about is when they’re raising the vast majority of the money for development, and therefore the people that are developing it have very little risk. It’s the people that are investing that are taking the vast majority of the risk. That’s where I think it becomes a bit of a concern.
Jemma Forte: Yeah, so do your research basically, in terms of who you go with.
Tony Gimple: And maybe take a longer term view. Build to rent, particularly for social housing, long term investment, long term are very stable returns, is the way the property market is starting to go. There are incentives for it. So perhaps using crowd funding for a stable investor, long term social housing contracts gives you the best of both worlds, [inaudible 00:13:15] for the conscious, and growth in the pocket.
Jemma Forte: Okay, yeah, because I think that is the thing that would concern me, was exactly what you were describing before. So yeah, it’s an interesting thing. You think it’s here to stay as well Piragash?
Piragash S: I’m actually a big fan for a couple of reasons really. Number one, equity crowd funding. Paul was talking about the use and development finance for example. I think it’s amazing on one hand that investors, it democratizes the whole thing, so they can be decision makers, which is good and bad. But also, if you’re an SME business, it’s going to cost you a lot to be listed on the FTSE, where we’re here. But if you still have the ability to raise equity, it’s incredibly powerful for your business. So on one hand I think it’s a wonderful opportunity. Mistakes will be made.
Banks have been around for 250 years, have made mistakes as recent as 2007. So I think if you’re an investor, you’ve got to look very carefully. A bad deal that’s over-levered like Paul says is always going to be a bad deal. But it doesn’t make the whole platform itself bad in and of itself.
Paul Mahoney: Absolutely, I-
Jemma Forte: It’s a little bit of a gamble.
Paul Mahoney: Yeah, I absolutely agree with that. I suppose my point was, given that some potentially bad deals are being offered to the general public that can invest 50 quid, who aren’t sophisticated investors, that’s never been the case before. So that unsophisticated investor, or for want of a better word, just needs to be a little bit careful.
Jemma Forte: Okie dokie, all right. Or maybe just put in as much as you would be prepared to lose, if that makes sense.
Piragash S: The capital is certainly at risk.
Jemma Forte: Yeah, don’t put your life savings in without having investigated quite carefully. Thank you so much gents. That’s all we’ve got time for in this part of the program, but do rejoin us after this short break when we’ll be discussing rogue landlords and legislation aimed at flushing them out. And what happens when property investments go wrong? So don’t go anywhere.
Welcome back this property and finance special with me, Jemma Forte, and my guests who are Piragash Sivanesan, Paul Mahoney and Tony Gimple. Okay, in this section we’re going to be talking about the following; rogue landlords exist, there’s no getting away from it, and it is easy for tenant to taint all landlords with the same brush. But there are moves to shall we say, eradicate the rogue ones.
Tony, it’s over to you. Now I think this has come about, hasn’t it, because of what the Mayor of Manchester, Andy Burnham, has been trying to achieve, which … You’ve already, I can see the three of you all grinning. But from an idealistic point of view, he’s obviously tried to weed out those landlords who really are in the minority. But they do exploit people with unsanitary conditions, probably not fixing things when they go wrong, perhaps not smoke alarms, all the stuff that you would expect as basic rights. He’s trying to do this by forming an amnesty, isn’t he, so these rogue landlords can come forward? Now that’s the bit I think you’re not fully sold on, in terms of how it will work.
Tony Gimple: I’m not fully sold on how, not tenants but political parties, keep using landlords as a convenient scapegoat. It’s not just unsanitary conditions, it’s also bad institutional landlords, [inaudible 00:16:59].
Jemma Forte: That’s as bad as it gets isn’t it?
Tony Gimple: That’s a rogue landlord-
Jemma Forte: [crosstalk 00:17:04] absolutely an eagle, and that was the council.
Tony Gimple: That was the council.
Jemma Forte: The richest borough in London, which just the irony was so tragic.
Tony Gimple: The fact is, rogue landlords, deliberate rogue landlords, 20 to a room, exploiting people, trafficking, taking advantage of people being here perhaps illegally, but coming here because they want somewhere to live, they are not in the landlord sector. They’re criminals.
Jemma Forte: Yes, and there is a distinction, isn’t there? You’re absolutely right. There is very big distinction to make between somebody like that. I think that’s what people immediately think about. Yeah, crowded rooms, just letting out to perhaps illegal immigrants and people who are desperate, refugees even. Yeah, that has obviously got to stop. But you don’t think this initiative is aimed at them?
Tony Gimple: No. It’s not aimed at them.
Jemma Forte: Okay.
Tony Gimple: If it were aimed at true rogue landlords, more resources would be given to tackle-
Jemma Forte: It would be a police matter, wouldn’t it?
Tony Gimple: It would be a police matter.
Jemma Forte: Yeah. Whereas what he is trying to do, and have I got it vaguely right, what he’s trying to do is say in Manchester, right for this period of time only, if you are a rogue landlord, which does seem to me is like, anybody who is a rogue landlord is going to go, “I am, I’m a criminal,” come forward-
Tony Gimple: Please-
Jemma Forte: … and then we will actually buy your properties from you.
Tony Gimple: Oh, and here’s the rub … I think there was a comment about market value-
Paul Mahoney: Market value. There’s a question around whether it could be perceived as befitting rogue landlords for paying market value. The answer was, “Who said anything about market value?”
Jemma Forte: Right-
Paul Mahoney: Which the whole thing is just a bit laughable.
Tony Gimple: I think Mark said something about market value.
Jemma Forte: When he’s talking about a rogue landlord, who do you think he’s talking about, people that are just not meeting basic requirements, because there is, there are laws in place, aren’t there-
Tony Gimple: Yeah.
Jemma Forte: … in terms of what you have to do. I know that, because my parents have a flat which they have always rented out, and they are the nicest landlords in the world. They’re always driving over there to make sure everybody is happy. The minute there’s a dishwasher or something that went wrong, they instantly just buy a new one and with the client to make sure they’ve got what they want. It’s not a big glamorous flat, but it’s a nice little flat, and they keep it beautifully, because it’s ultimately their property. Now I don’t think … obviously we’re not talking about them. So I have to think here he’s trying to do something good, but maybe just in the wrong way.
Tony Gimple: No, he’s trying to get elected with a very well funded political machine [inaudible 00:19:45] behind him. It all comes down to how many votes we can get at the next election, whether blue tie, yellow tie, or red tie. People will use, politicians in particular will use, easy targets, visible targets like landlords to win votes and raise taxes.
Jemma Forte: So you’re telling that a politician is being self serving in this country?
Tony Gimple: You can draw from that whatever you like.
Paul Mahoney: I agree with Tony in a way. I definitely think he’s using landlords as a soapbox. They are a very easy target. It’s been done quite a lot quite recently by a range of politicians. I obviously also agree that the rogue landlord should be removed from the market. What that refers to I suppose is subjective. Obviously there’s a range of regulations that landlords need to be meeting. If they’re not meeting them, they shouldn’t be landlords. I think that does need to be better policed.
Jemma Forte: Yeah. I mean as you say … I mean, I rented for a short time a few years ago, and it was for me and my two kids. My landlord was disgraceful. She was a [inaudible 00:20:59] and it was all right. It wasn’t like living in absolutely terrible conditions, but there was damp in my daughter’s bedroom. The shower stopped working for goodness knows how long. I was phoning up the agent, it was a managed thing, and they just had to say, “Well we have to ask her permission. We have to ask her permission. She’s never answering.” I got to the point I said, “Well if it’s managed, manage it. Make the decision so we can have a shower.”
Tony Gimple: Well here’s the other side of the coin. Licensing is actually a good thing for the sector. It helps landlords professionalize, invest property, build good, decent accommodation, where we as the tenant can feel safe in a secure environment. It will raise capital values. It will raise rents. It will make it easier to borrow money on, easier to expand. So the other side of the rogue landlord debate is to have fair, well enforced licensing for HMOs, ASTs, so everybody knows they’ve got a level playing field in the market. The people who are rogue landlords won’t play that game, and they’ll be much easier to pick off.
Jemma Forte: Yeah.
Piragash S: I think the other thing to add, to round it off in terms of the funding is, if you did have things like licensing, then the lenders would get behind it. So what you’d actually have is instead of government money, public money being used to reward in some ways rogue landlords, you’d actually have the reverse, which is funding is removed from rogue landlords, which is another way. So I think we can all agree no one likes rogue landlords, but I think in terms of a policy, it’s slightly knee jerk. It’s meant in the right way. There are longer term policies, which I think if implemented, be it licensing, be it requirement … I mean here’s one, why not reward good landlords with being able to purchase rogue landlords properties at significant below market? Now I appreciate it’s subjective, but that’s a way to reward, rather than instantly trying to have it [crosstalk 00:23:04]-
Jemma Forte: It’s very interesting, and I think in business that reward not punish system certainly works with small children. But no, I genuinely believe that. There’s more incentives for people who are doing good stuff, and who are successful and good at what they do. That makes more sense than trying to punish all the time. Okay, so I think we’re all agreed, rogue landlords need to be got rid off, but this particular policy probably isn’t going to be that effective.
Tony Gimple: No. No, and the reward side, again, is being abused because you have very successful landlords who do provide homes for life as long as the rent is being paid battered to death by Section 24. We see people who are going to go out of business in three years as a direct result of those changes.
Jemma Forte: Yeah. Yeah, and of course … I mean, actually with people not being able to buy their own homes, you need landlords. You need good landlords, because there’s a huge proportion renting now.
Tony Gimple: Yeah, it goes back to what we said at the beginning, [inaudible 00:24:03] social change, where people want to start renting as opposed to buying. There are a lot of landlords out there who don’t own their own homes.
Jemma Forte: Yeah, it will be interesting, like they say, to see what happens 20 years down the line, because it’s certainly seems like there’s a huge shift. Okay, onto our next subject which is when property investments go wrong. Now in the UK, we usually consider property to be a very safe investment, and when we always say things like, “It’s safe as houses,” but sometimes things can go wrong. Knowing how to deal with those eventualities is crucial. Now of course, you’re all industry experts. I’m sure at some point you’ll have experienced, which will add to your wealth of experience, a bit of a disaster. But when property investments go wrong Paul, what are the most likely causes, and how can you mitigate for those?
Paul Mahoney: There’s a whole range of things that can go wrong with property investment. I think you’re quite right, too many people just expect that you buy a property, and you make loads of money, and there’s never any headaches. That’s just not the case whatsoever. I’d say that the most common reason that property investments go wrong is a lack of understanding. Your lack of due diligence, lack of understanding of who you’re going to rent to, who you’re going to sell to at some point in the future. And I suppose as they say, literally going down, speaking to your estate agent buying the property they tell you to, and then hoping it’s going to be a good investment. Especially in the current market, that is just no longer the case. You can’t do that. You need to understand not just the property, and what’s going to drive, that is an investment, but all the rules and regulations that have changed so much recently.
Jemma Forte: Does it frustrate you professionally sometimes when you see people that haven’t any experience in the property world whatsoever, jumping on what they think is going to be a really lucrative bandwagon and getting it wrong, because they haven’t … they’ve maybe not appreciated what a difficult market it is.
Tony Gimple: The [inaudible 00:26:02] answer is yes. That’s simply a lack of education. If you’ve got capital or can raise capital, and want to make something of yourself, far be it from any of us to say you shouldn’t do it. If you are going to do it, have a plan. Understand what it is you are trying to achieve, what you want from it. Tenants and toilets are hard work at three o’clock in the morning when your plumber won’t come out, so you’ll be prepared.
I think the biggest mistake people make when they go into any investment, but probably property in particular, is failing to look at the worst case scenario. There maybe nothing that you can do about it when it all goes wrong, particularly if it’s not your fault, it’s government policy, or just changed in economic circumstances making [inaudible 00:26:44] go wrong, but at least understand. Look at it first, and if you decide to do nothing about it, you’ve made a decision. But understand it, do your research, your due diligence.
Jemma Forte: Okay, fair enough. Piragash, have you ever had any disasters that you’ve had to …
Piragash S: Not personally, but ultimately I think it’s about understanding cashflow. That’s really the main driver, because property is a longterm asset. It will be here in two years, 10 years, 15 years. The main reason things go difficult is for some reason, the mortgage payment is now harder to make than it was yesterday. So it’s understanding the drivers around each of those.
Also, if property was risk free, the bank would give you the money at one percent inflation rate basically. The reason it charges a rate is because there is risk. I really don’t mind novices entering the market. I mean, we all had to start somewhere. But I think just like Tony said, if you’ve got some capital, well more for you in order to … Property is a great investment. It just needs to be done in the knowledge that there is cycles. There is boom and bust, and you need to build a business that can absorb those.
Jemma Forte: So you’ve mentioned two things that could go wrong [inaudible 00:28:04]. For you, new tax policies, new policies that you couldn’t possibly have foreseen. For you, the personal circumstances might change, and then you might not be able to meet the payments that you.
Tony Gimple: Both of which lenders now have to take into account when making a judgment about your ability to repay the buy-to-let mortgage.
Jemma Forte: Right.
Paul Mahoney: Just one more point on that, on the novice side of things. I completely agree that novices need to, and should get involved, that they should get advice and guidance when doing so, and understand their skillset. Unfortunately, I think there are dare I say various TV shows that make these things look very easy, so far as buying-
Jemma Forte: Not on this channel-
Paul Mahoney: … not this one obviously, buying, renovating, selling for a fortune. It’s not that easy.
Jemma Forte: I think it was maybe 20 years ago.
Paul Mahoney: It might have been more easier before but-
Jemma Forte: It was easier. Nothing is definite but-
Paul Mahoney: [crosstalk 00:28:52] I supposed understanding that, are you a property investor, are you a developer, because buying, and renovating, and selling is a development project. It’s a big undertaking. So understanding what your skillset is, and therefore what your risk profile is, and then what’s going to work best for you.
Jemma Forte: Yeah. Yeah, you’re so right. In fact, yeah, renovating a project is a massive undertaking. Fortunately there are a few shoes that reveal that as well and I think, “Oh my goodness, what have these people taken on?” But yeah, no it’s very interesting, and I think this is why it’s good to have these discussions. I think people should be tentative, shouldn’t they? With regard to new policies coming in, how much warning do people get when things are about to change?
Tony Gimple: It depends what it about to change. If it’s Excise Duty, midnight tonight. If it’s tax policy, normally from the start of the new financial year. If it’s the government leaving nothing in the cupboard, try not to vote for them for too many consecutive terms.
Jemma Forte: Yeah, okay. All right then.
Piragash S: Yeah, I think I would just add that we’re in an incredibly competitive marketplace in terms of property. Often people can fall into the trap that just because legislation allows you to invest in something, or a bank gives you the mortgage that you require, that it means that everything is safe, almost leaving the checks to somebody else. Actually, it comes down to you as an individual. You’ve got to understand what things work for you, and what potentially can cause a hindrance.
Jemma Forte: Excellent advice. Thank you very much. So proceed with caution. Okay, we have to draw this part of the program to a gentle pause gentlemen. But don’t go away, because as soon as we get back we’ll be tackling the issues of social housing, and at the other end of the spectrum, landlords versus legislation. Or perhaps it’s vice versa. Don’t go away.
Welcome back to this finance and property special with me, Jemma Forte, and my guests today who are Piragash Sivanesan, Paul Mahoney and Tony Gimple. I almost did a little song there, didn’t I? Anyway, we are now going to be talking about social housing. Piragash, I’m going to start with you. Do you think enough is being done? I think we can all agree no, not enough is being done.
Piragash S: I think the rhetoric, the politics of social housing, meaning that we’ve had lots of legislation which have been positive. We’ve had the Homeless Reduction Act. No one can argue against something like that. But, we’re still seeing homelessness increase.
Jemma Forte: I know, I know.
Piragash S: Also, it’s the [inaudible 00:31:44] of that, so it’s now the councils that have to deliver on that, and yet it appears as if they have less and less to work with. So although the politics seem to work, the actual execution, in terms of genuinely putting more social housing out there, is what’s really failing. I think as someone in the private sector, what I would like to see is more of a debate as to how the private sector can help. But more importantly, a realization that if the private sector does get involved, yes, that dirty word profit may have to be made. But more importantly, actually we should celebrate the fact that the private sector can get involved.
In affordable housing for example, we’ve seen large pension funds, investment companies, actually coming, and actually expand the amount of housing. We’ve seen bonds issued by housing associations, backed by private money. These are the types of initiatives that I think we need to explore more, because if we just leave it at the politics, the sad thing is, there’s a 250% rise in the use on B&Bs for permanent housing. I mean, we can all agree that that’s just heartbreaking.
Jemma Forte: I know.
Piragash S: We need a solution. For me, that solution can only be found by bridging private and public. What I would finally add is, we have a number of landlords that actually provide social care type housing. But actually, it’s even a problem for funders. So some funders will shy away from providing funds to allow landlords to buy their stock, because it seems vulnerable people. The issue for lenders is that if they were to repossess a house with a vulnerable person, then it looks bad. But actually we’ve got to all get beyond that a little bit, and really-
Jemma Forte: [crosstalk 00:33:36] vulnerable people surely that were being paid for by the government.
Piragash S: Yeah absolutely, so that’s why it makes sense in terms of the government action, willing to pay to support these people. But actually from a private perspective, unless you’ve just got cash, lenders are weary. I mean, there are some lenders out there, but it’s how can we make this more accessible because [crosstalk 00:33:58]-
Jemma Forte: You’re right. You’re right, if you need to plunder resources, if the resources are people in the private sector, they’re not going to do it just for [inaudible 00:34:05] probably, so they need to have an incentive. Some kind of structure must be possible-
Tony Gimple: But then neither is government doing it for love. Call it a budget surplus, change surplus for profit, and you have exactly the same thing. Unless there’s [inaudible 00:34:23] in the system, you can’t invest in infrastructure and public works. When we say social housing, social landlords, all landlords are social housing because they’re putting roofs over people’s heads.
We have almost the law of unintended consequences. We’re having to do six month tenancies. Actually you’re not giving people a long term roof over their heads. Most people who rent, they’re in two classes; short term, transient, between places, between lives, or for the long haul, somewhere to raise their kids. Private sector can get involved financially. Built to rent is a fantastic way of doing it. They are looking for longer term contracts, working with local authorities to come up with the right deals for the right people.
I think we looked at some rough numbers and … take one of the refugee schemes for instance. That’s a good bar, our pricing much the same way. Rents for about three quarters of what you would get on the open market. But then the costs of setting up and running it are about three quarters of what it would cost in the open market, so you’re still making a profit. Government has a surplus, which it can reinvest, and we’re all social housing whilst maintaining business’ ability to generate social mobility. As long as people don’t pull the ladder up behind them afterwards, eventually it pretty much works.
Jemma Forte: Yeah, there does have to be something done.
Paul Mahoney: I’m a massive believer in profitable philanthropy. I don’t think anything else really works, because otherwise you’re just throwing money away. People get greedy with the money they’re given. They don’t use it [crosstalk 00:36:03]-
Jemma Forte: I think that’s a good expression, positive philanthropy. That makes sense.
Paul Mahoney: Yeah, and [crosstalk 00:36:07]-
Jemma Forte: It encourages more people to get involved as well.
Paul Mahoney: Exactly, and although landlords are viewed in a negative light for some silly, strange reason, incentivizing landlords to provide this social housing shortfall that there is, seems to me just so logical. It would be probably an unpopular policy, because it would be viewed by the masses as rewarding landlords for-
Jemma Forte: I don’t know-
Paul Mahoney: [crosstalk 00:36:34] for providing a good service-
Jemma Forte: I don’t know. I think if the outcome … I think people are intelligent, and if that is I’m using my business to do something that’s socially helpful. This Christmas, and then of course in March, we had the really horrific weather, and you do notice that the homeless situation is out of hand. I don’t give out to everybody, but when I do, I usually stop and have a chat. The circumstances that you hear, people that are … I met one guy who just split up with his wife. She kicked him out. He didn’t have an address. Things go from bad to worse. So eloquent, desperate to get an address so he can get a job. You just think, if he could just get that address. He just, “That’s all I want to do. I want to turn everything around.” I totally believed him. There’s got to be some more solutions, absolutely.
Piragash S: I think finally, just to go back to policy, the other thing we haven’t really talked about is universal credit. That’s obviously coming in, and there is a view about bringing it in line with what average wage is. So from whatever it is, 24, 27 [inaudible 00:37:32] it down to 18. I understand the logic of it, but now what? How are these people going to be housed, when in a situation where you’re actually withdrawing their income?
The other thing around policy is probably planning. For developers certainly, if you incentivize them and make the process easier, that’s an opportunity. The other thing is technology. Modular construction is around now, and that can bring the cost down. I think if you give the opportunity for the entrepreneurs, they will create stock. We’ve just got to be given an opportunity I think.
Jemma Forte: Excellent. Okay, our final topic for today is legislation and landlords overcoming the legislatures. Can private landlords fight the legislation that threatens to put them out of business? It’s very relevant to everything that we’ve been talking about today. Tony, should we start with you?
Tony Gimple: Should they fight it? They should certainly make their views known. We have a parliamentary democracy. Thank you Cromwell, one of the few good things he did. If you believe in something, if you believe [inaudible 00:38:35] been done to you is unfair, you have an absolute right and obligation to push back. Not all legislation is bad. We need a degree of framework and consistency in which to work. Was Section 24 a bad thing? Yes. [crosstalk 00:38:58]-
Jemma Forte: For anyone who is watching that doesn’t specifically know about Section 24, would you mind just doing us the honor of explaining?
Tony Gimple: It is the capping of tax relief you can get on mortgage borrowings. Effectively it means it’s capped at whatever the basic rate is. You only get 20% relief against your mortgage interest costs, which is crazy, because given that the vast majority or landlords are operating as a business, in fact they totally meet HMRC’s definition of what is a business, you wouldn’t punish businesses in any other way. But landlords are a visible target.
Jemma Forte: Yeah. Yeah, and has that been so detrimental that it has actually gone as far as putting people out of business altogether?
Tony Gimple: Yeah.
Jemma Forte: Really?
Tony Gimple: Yeah. Yeah, and we’re seeing more and more of it.
Paul Mahoney: Certain people … I think it’s very important to clarify this, because a lot of the discussion we’ve had so far I think has been quite negative, and that could lead people to believe that property investment is no longer a viable option, which it most certainly is-
Jemma Forte: Is, yeah-
Paul Mahoney: … in the right circumstances. Tony is quite right, for that certain type of person that followed a certain type of strategy, they could be put out of business by this change. But there are a range of ways of dealing with it, and to still operate a profitable property investment business. So I suppose I just wanted to clarify that [crosstalk 00:40:17]-
Jemma Forte: Yeah. No, I think that’s really, really worth saying.
Paul Mahoney: It’s not all doom and gloom, because it’s very easy to say that all the recent changes have been … if you read the papers, you probably think the same [crosstalk 00:40:26]-
Jemma Forte: You’re all still standing.
Tony Gimple: Absolutely. Sadly, because implementation, the compliance has been such a blunt instrument, you’ve got people who, one shop we spoke with, and this will give you a clue as to how long he’s been in the market, he has 100% DSS, Department of Social Security tenant, a long time before universal credit, and his social compact with them was you pay your rent, I will give you a well maintained, regularly decorated, and fit to live home for life. As a direct result of Section 24, in three years time he will be bankrupt.
Paul Mahoney: See that’s ridiculous.
Jemma Forte: See that is ridiculous. It’s punishing the people that they’re trying to-
Tony Gimple: Correct. Correct, but this is the problem when you have dogma over logic. Sadly, we have an adversarial democracy, and then dogma rule is okay.
Jemma Forte: So that person goes out of business, and then they’ll do a huge campaign, trying to find people like him.
Tony Gimple: Correct.
Jemma Forte: Yes, bureaucracy …
Piragash S: Yeah, I think just to add, first of all, a number of property entrepreneurs will find ways … there are a number of strategies in order to succeed. We’ve talked quite heavily about residential property investment, but there’s also commercial property investment. There’s development. There’s lots of different strategies that can be used. Also, to be topical and to use business, quite clearly Sainsbury felt the need to merge with Asda, which has blown a lot of people away. But it’s the kind of out of the box thinking that they’ve had to do in order to be relevant in their marketplace. So the marketplace will continue to change. We will have changes in government. We will have different legislations.
I absolutely agree with Tony that landlords should come together and have a united voice. I think that’s something that’s sometimes been missing. I think that’s crucial. But let’s not forget this is ultimately a business, and in order to be profitable, they may have to change. It’s looking outside the box, and it’s working out different … maybe we’re going to start to see a bit of M&A activity, even within the property sector, in order to gain different types of interest or diversifications. So these are the types of things that actually we should still consider. The property investor is never going to die out. It’s just a question about what they look like.
Jemma Forte: Okay, and going back to your positive note, which I think is so important, is there anything you’d like to add in terms of advice for people who are looking to [crosstalk 00:43:04]-
Paul Mahoney: I think it’s a really interesting point that was raised there, so far as changes in strategy, and perhaps … to be honest, I’ve never thought about it that way, but landlords have had it the same way for so long. The same strategy has almost worked for 20, 30 years, and now things have changed. In some cases, the toys are being thrown out of the pram. But that’s obviously not the best way of dealing with it. There are a range of ways of dealing with these changes, and changing the strategy to the current market.
Jemma Forte: So being pragmatic?
Tony Gimple: Yeah, absolutely. The property market has been here since feudal times and before, with landowners and tenants. It’s just evolved onto a smaller, and smaller, and smaller scale, so [crosstalk 00:43:42]-
Jemma Forte: Yeah-
Tony Gimple: … individual ownership, our own plot of land. An acre, an amount you can plow in one day and support yourself. [inaudible 00:43:50] so I can use imperial measure. So the market has [crosstalk 00:43:55]-
Jemma Forte: Not yet-
Tony Gimple: Well, near enough. It’s over, get over it guys [inaudible 00:43:59]
Jemma Forte: No need to tell us what you voted.
Tony Gimple: That’s despite coming immigrant stock, second generation, okay [inaudible 00:44:09] best buy the buy. The market is changing, but it is yet an example of being another business. Treat it like any other business. Be it property, be it equities, be it television, be it the corner shop, you have to make the same decisions. Will I get a return on my capital? Will it generate me income? Can I maximize the commercial benefit of doing so, and how flexible can I be, when the market changes the next time, because it will?
Jemma Forte: There you go. Things change. Well, on the philosophical note, I’m afraid that is all we’ve got time for today. But please join us next time when our industry experts will be sharing their views, tackling other topics within the world of property and finance. So from my guests, I’d just like to say thank you so much to Piragash, Paul, and Tony, thank you very much gents, and from me Jemma Forte, I’ll see you next time.