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'Casino councils' in Kent investing millions in property amid cuts in government grants

By Paul Francis

Cash-strapped councils in Kent are spending millions of pounds buying offices, shops and even petrol stations and restaurants as they look to compensate for cuts in government grants.

An investigation by the KM has discovered many councils are turning to property investment as a way of balancing their books and generating money.

Yet the so-called “casino councils” have been accused of running risks by investing in the property market, while others have claimed they are striking shrewd deals on behalf of taxpayers.

The Whitefriars Shopping Centre in Canterbury
The Whitefriars Shopping Centre in Canterbury

Shoppers hunting for bargains at the Whitefriars mall in Canterbury may not be interested in who owns the site but they may be surprised to learn it is owned by the council.

It bought the centre outright earlier this year for £75.5 million - on top of a stake of some £79m it already had.

Like many authorities, balancing the books in the face of a relentless government spending squeeze has forced it to look at different ways of bridging the shortfall and safeguarding services.

Council leader Simon Cook is unapologetically enthusiastic about its strategy of investing in property.

The council - like most - has to face the cold reality that while the period of austerity may have ended, the government is unlikely to be showering councils with more money.

He says the council’s approach is not just about bringing in cash but the potential for boosting the local economy through regeneration.

“It is about making sure that we are using public money for the best purpose," he said.

Council leader Simon Cook with some of the former student houses that Canterbury City Council has bought
Council leader Simon Cook with some of the former student houses that Canterbury City Council has bought

"The money we make can be used to keep council tax down or invest in services.”

He is sceptical about councils who are buying property just to make money.

“If your bottom line is just about making a profit, then you are limiting your options.

"Our investments are made with a much wider view and, yes, there is a risk but there is a risk with everything.”

The council recently considered whether it should look beyond the Canterbury boundary but decided not to.

"Our investments are made with a much wider view and, yes, there is a risk but there is a risk with everything...” - Cllr Simon Cook, Canterbury City Council

“If councils begin to compete against one another, you have to question whether that makes sense.

"If we buy an office block, we get money from rents and business rates.

"Going outside Canterbury means we would lose business rates.”

It is not the council’s only retail investment. In 2013, it bought a Homebase store at Wincheap for £3.5m.

But as if to highlight the risk, that site is now set to be closed down as efforts continue to save the DIY chain. Retail premises are among common acquisitions by councils.

Dover council bought the B&Q store in Whitfield for £16.3m in 2017 for the purposes of “regeneration and development potential.”

Councils' spending on their property portfolios
Councils' spending on their property portfolios

Ashford council paid £3.4m for the town’s Wilkinson store in 2015 after a separate acquisition for the Park Mall shopping centre.

While many councils emphasise that their strategy is related to regeneration, some make no bones that they are using it to make up for government cuts.

Sevenoaks council has blazed a trail by becoming one of the most pro-active authorities for property investment.

It spent nearly £18m on commercial property between 2013 and 2017 - with a list that includes a petrol station and a former working men’s club.

And in a pioneering scheme, it recently funded the costs of building a hotel in the town, which was handed over to Premier Inn as part of a partnership with the chain.

Sevenoaks council leader Peter Fleming with the team behind the new Premier Inn in Sevenoaks. The authority funded the building of the hotel
Sevenoaks council leader Peter Fleming with the team behind the new Premier Inn in Sevenoaks. The authority funded the building of the hotel

Council leader Peter Fleming said the authority deliberately developed a strategy in which property investment has been used to help it become an entirely self-sufficient council.

He explained: “We are one of a few councils that do not get any government grants or money from the New Homes Bonus and we set out to become a financially self-sufficient authority.

"But we couldn’t do that by just keeping money in the bank. The issue for us was not that it would be a risk doing it but that it would be a risk not doing it.”

The council’s strategy initially set a £5m cap on property it bought and a 6% return.

But not every authority is convinced. Jeremy Kite, the leader of Dartford council, is wary of the idea.

Cllr Jeremy Kite
Cllr Jeremy Kite

“My own view is that if I had a spare £5m, I’d spend it on something like a swimming pool or leisure centre,” he said.

"I believe that we are here to provide services to local people and should be putting money into that.

"And it can take years before investments produce an income.

“In our case, property values are high and we are probably better off relying on business rates.”

But for others, property investment is becoming inevitable.

Ashford council is the latest Kent authority to set out a strategy which it says “will contribute significantly to its income and help fund services.”

Park Mall Shopping Centre in Ashford
Park Mall Shopping Centre in Ashford

It has recently bought a former bingo hall and is underwriting the costs of an 80,000 square foot office close to the International Station in what is called the town’s commercial quarter.

According to the politician in charge, Cllr Graham Galpin, the strategy is “another milestone on our journey towards becoming a commercial, self-sufficient organisation.”

It can point to a 12.6% return on a £7.7m investment buying International House, a landmark ten-storey office block in the town, as evidence.

Its most recent purchase was a multi-million pound deal for a 28-unit business park.

But the council acknowledges the diminishing level of government grants is a major factor in its three-year programme, saying “funding from the government will fall to zero by 2019-20”.

Maidstone council has also taken a pro-active approach to property investment, spending £12.8m over the last four years.

The Sandling Road car park and former Royal Mail delivery and sorting office
The Sandling Road car park and former Royal Mail delivery and sorting office

Its purchases include £3.35m on Granada House - a former bingo hall - in the town and £2.5m on the Royal Mail depot at Sandling Road.

“By building up our existing asset base,” a spokesman said, “we will secure a long term, stable revenue stream that could be used to support core services in the medium to long term that could potentially no longer be supported due to government grant cuts.”

The council says it is focusing on investment that will help provide “good quality homes for market rent” which in turn will create jobs and boost the local economy.

For many councils, investment in commercial property is becoming increasingly important.

With a cap on council tax, diminishing government grants there are few options available as demand for services rise.

“My own view is that if I had a spare £5m, I’d spend it on something like a swimming pool or leisure centre...” - Cllr Jeremy Kite, Dartford Borough Council

But it is not without risks. As the collapse of Icelandic banks more than a decade ago showed, whatever measures are in place to minimise the risk, councils could become financially exposed very quickly.

A council in Surrey bought the site of a House of Fraser store for £17.6m - only for the retailer to go into administration and close it.

And the returns on investment are not always immediate - with income often not coming through for several years.

Becoming overly reliant on property investments to pay for statutory services was described by independent peer Lord Oakshott as “a gigantic game of Monopoly with taxpayers’ cash”.

Moreover, in the quest for the best investment, some councils are staking out a property portfolio that suggests there may be something of a turf war unfolding.

Medway council leader Alan Jarrett is happy to accept that his council has no qualms about venturing beyond the authority’s boundary lines.

Cllr Alan Jarrett
Cllr Alan Jarrett

“It is something other councils have been doing to us for some time, so no, we don’t restrict ourselves,” he said.

While he doesn’t mention any names, he may be looking at Gravesham, which acquired a long lease on Network House on the Gillingham Business Park for £3.15m in 2016.

Gravesham also spent £2.32m acquiring the freehold on a property in Dartford last year.

The council said all acquisitions were funded without the need to borrow.

“The annual rent generated will be used to support day-to-day services to residents.”

Sevenoaks council has also decided that it will look beyond its boundaries for investment.

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