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Councils place multi-billion pound ‘bets’ on commercial property

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Vedanta Hedging recently hosted a seminar regarding council borrowing and the implications for local authorities. Abhishek Sachdev (CEO of Vedanta Hedging), has provided extensive analysis and commentary regarding how Banks mis-sold complex loans with  hidden derivatives to Councils in Channel 4’s Dispatches programme. In addition, given live evidence to Select Committee of MPs in Westminster about the complex issues surrounding mis-sold LOBOs.

Unlike LOBO loans, council borrowing from the government has recently been on the rise. Across the UK, British councils have been plunging into the commercial property market or the residential property development. According to The Times article (below), councils are placing multi-billion pound ‘bets’ on commercial property. With hope to gain revenue lost through government cuts, and possible expensive LOBO loans they were mis-sold.

Since 2015, councils have paid over £2.7 billion for commercial properties, up from £500 million over the past three years. This has raised concerns with loans being taken out with little or no previous investment experience. Experts warn that some local authorities are developing ‘exceptionally risky’ portfolios, accounting for up to a third of buyers in some areas.

The shopping spree has been at its fiercest for shopping centres. Last year, Canterbury Council paid £79 million for a 50% stake in the Whitefriars centre. While the Stockport Borough Council bought the Merseyside Shopping Centre for £75 million. Despite the concerns that the online market is negatively impacting bricks-and-mortar retailers.

The Royal Institute of Chartered Surveyors has advised that the demand for retail space is reducing and rents are stagnating as consumer restraint spending or shop online.

Meg Hillier, the Labour MP who chaired the public accounts committee in the last parliament said; “The danger is a repeat of the Icelandic banking collapse when councils were overexposed to one market. A crash in the value of offices or shopping centres could have a very big impact with councils suddenly owing a lot of white elephants,”

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