Making strategic property investments isn’t easy when the social housing sector is going through constant change. In this blog, Paul Byrne (Asset Management specialist) discusses key Active Asset Management practices that organisations must develop to demonstrate robust business planning and risk management.
As we all know, the Governance and Financial Viability Standard now expects organisations to demonstrate robust business planning and risk management, and maintain an asset and liabilities register which includes loan covenants. This is coupled with detailed and robust stress testing of business plans against “identified risks and a combinations of risks” and the requirement of the Homes and Communities Agency (HCA) is to work at a more granular level.
In order to comply with these requirements, organisations are increasingly developing an Active Asset Management strategy. This strategy is focused on enabling them to appraise the financial (Net Present Value) and non financial performance of their portfolio’s – whether that be the whole stock or on a property, street, estate or area level. This analysis provides the evidence on which to base any future investment or divestment decisions, and provides a consistent approach for future reviews of the cost effectiveness of stock.
At the start, there are various key questions that organisations need to ask themselves to find out ‘where are we now’, such as:
- How is the stock currently performing?
- How does the performance of the stock look over the next 5,10,20,30 years?
- What risks do we face?
It’s also important to check out the following typical ‘risks’:
- Significant changes in interest rates
- Availability of funding
- Changes in market rents
- Changes in property values
- Changes in the availability of welfare
- Changes in building costs
Moving from appraising options to project planning and delivery
Although there are a number of stand alone solutions, social landlords now require an integrated approach which leverages the powerful functionality from the various modules providing the data for the appraisals. For example, the survey data provides all of the future costs of component replacement. Other costs, such as management overheads and servicing and inspection costs, can also be factored in along with rental income, void and repairs data which resides in the housing management system. Once an appraisal has been agreed this can then be converted into a ‘live’ project which can be managed from inception to completion within Promaster’s Project module.
A recent good example of this comes from an existing client who chose our Options Appraisal solution to manage their stock viability options using net present value (NPV) calculations and neighbourhood insight scoring. Their focus of the NPV calculations had previously been at a neighbourhood level, and now they can appraise any subset or indeed all of the stock and compare different scenarios for the same group of properties. This is now a key driver in making investment decisions and has helped them to set targets based on the appraisal results. As an existing customer, they have been able to maximise use of the condition data that they already have stored in Promaster.
Whilst the sector continues to go through ongoing, constant changes, having an Active Asset Management strategy in place (that includes yearly reviews) is going to become fundamental. We look forward to helping organisations on that journey.