Housing associations building in the commercial market is “risky” according to the ratings agency Moody’s.
According to Speaking 24housing “The income generated from outright sales activity are far less predictable than those from rents in the social housing. It also exposes them to the cyclicality of the property market.”
“We do have a hierarchy of the tenures of what we think is the most risky to the least risky, and we do view core business with rents linked to government is very safe.
“When you get to the developer side, there are many components that make it risky, one of those is how it is funded and at the moment, social rented properties because of the lack of capital grant are being funded by debt and sales.”
“As housing associations are closely linked to the government, there is an impact on the sovereign credit rating of our rated entities.
“So the negative outlook that we have at the moment followed the negative outlook we had on the UK government after the EU referendum.”
She added that at the moment there is “more negative pressure than positive pressure and we expect that to remain over the medium term.”
“This pressure has been ongoing for some time from the government as they look to build supply. Housing associations have been seen as a partner to boost supply.
“The credit negative aspect for us, of larger development programmes, is the way they are funded. We know the capital grant has been decreasing for a number of years and instead of grant, housing associations are now using debt and surpluses from commercial activity to fund their development programmes.
“We view both of those funding sources as quite risky. So it’s both the way they are funded and the scale, we are seeing an increase in scale generally speaking across development programmes across our rated portfolios.”
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