CROYDON COMMENTARY: With the housing market suffering a dip, rising borrowing rates and uncertainty over Brexit, there’s growing concerns over the council’s slow-progressing house-building company. Croydon South MP CHRIS PHILP, left, outlines what he sees as the risks for the council
Any development business plan predicated on future sales to fund future costs is very vulnerable to any delay in the sales, whether caused by construction delays or sales simply being slower than forecast.
If this delay to sales income occurs, there is a huge cash flow hole left to be filled in order to meet the future costs as they fall due, which cannot be funded by the delayed sales as originally intended.
It may be that the costs themselves can be delayed by running construction more slowly, but this is a financial tightrope exercise which will almost inevitably fail.
A third-party bank is very unlikely to fund any cash hole, meaning the council would have to inject vast sums of further cash to avoid the projects running out of money halfway through construction – which would be an even bigger disaster.
Such a further emergency cash injection would massively increase the council’s financial exposure to Brick by Brick beyond that intended at the outset and could lead to vast public losses if these projects – which are inherently speculative and risk-laden – go wrong.
The success of these projects depends on the competence of those running them. My confidence in Newman, Butler etc to deliver on time and on budget is low.
When developing public land you would normally expect to see an experienced partner appointed responsible for the delivery to avoid problems. And do we know if any commercial bank has actually yet agreed to lend to Brick by Brick?
- Before becoming the Conservative MP for Croydon South in 2015, Chris Philp was in business, being named London’s Emerging Entrepreneur of the Year in 2003 by Ernst & Young and The Times, and the CBI’s Entrepreneur of the Future in 2005. He is the founder of property development lender Pluto Capital
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