We have been reading an article this week about how owners of flats in The Wharf, Chatham Maritime currently face a total £3m bill for the remedial works to replace unsafe cladding.
It was announced in the budget that the Government is releasing £3.5bn of additional funding for the removal of unsafe cladding but… only for properties over 18m high. As The Wharf is under this, the funding does not apply.
A loan scheme where residents would have to pay no more than £50 per month was announced for buildings under 18m high however, considering a £20k bill, if this loan were at 0% interest (which we highly doubt it will be) it would take over 33 years to pay off!
Generally, 18m equates to around 5-6 stories and in this completely unfair scandal residents living in the Hamptons apartments in Gillingham Marina; which is over six stories, will not have to pay a penny for the replacement of their unsafe cladding.
I completely understand and agree that any unsafe cladding should be removed, however as the buildings met regulations when they were built, arguably there should be much more support available to fund the works.
Shockingly, the Government does not appear to have any data about how many of the UK’s 85,000 buildings between 11m and 18m tall have unsafe cladding. It’s therefore not immediately obvious as to why the decision to limit the funding to 18m and above was made.
We personally know a number of people who are stuck in a building that has unsafe cladding. Not only is it stressful because of safety concerns, but it is also a stressful experience because of how it causes residents to essentially become mortgage prisoners.
Because their properties are now worth less than nothing, there is no way that they can remortgage, sell and most likely even let their flat. Even if they could afford to make their contribution to replacing the cladding, this would likely need to be in agreement with all other residents and could potentially take a number of years to reach a conclusion.
There is no data as to how many buildings in the Medway Towns are affected by unsafe cladding (probably because Medway council does not know) and I’m not sure what the solution to this is, however it does bring one question for the investor and this is whether high rise flats are a good investment.
Are Flats A Good Investment?
We work with several investors that have a large number of flats in their portfolio and whilst it is up to each investor to choose the strategy that suits them best (be it HMO, single lets, serviced accommodation, etc), we would tend to avoid investing in flats for a number of different reasons.
Apart from the issue of unsafe cladding such as that at The Wharf in Chatham Dockside, the majority of flats will be leasehold properties meaning that they will significantly devalue if the lease drops below around 70 years. Due to this, you do not tend to get quite the same level of appreciation as with a freehold property.
In addition, things such as ground rents and service charges can eat into any profits (unless passed onto tenants). There is also limited scope to add value due to the nature of construction.
Saying this, however, there are some advantages to investing in flats and we do manage a number of flats for some very successful landlords.
Two significant advantages are how you can generally find good quality flats for around two-thirds of the cost that you would pay for a house meaning that investors can spread their risk and purchasing in a popular area can mean that properties are extremely easy to let.