Special report: England’s largest associations see sales-related drop in surplus

Explaining Clarion’s £3.4m deficit, a spokesperson said: “External market conditions in the private market were challenging for everyone in the sector in the last financial year, but our overall performance continued to be robust. Shared ownership sales generated a surplus of £15.7m on sales of £57.1m and the group continued to run a healthy surplus. Since then we have accelerated our investment in new homes and announced a record number of new home completions for the first half of 2019/20.”

At the other end of the scale, the RPs that made the largest surplus from open market sales were also based in London and the South, including Peabody (£22m), Hyde (£19.6m), Southern (£17m) and Notting Hill Genesis (£14m).

Together, those four RPs experienced a rise in their surplus on open market sales. While Peabody and Notting Hill Genesis saw a fall, this was more than offset by a rise for Southern and Hyde. Hyde, with a surplus of £19.6m, saw the largest leap from last year, when it generated a £979,000 surplus from open-market sales.

Southern’s surplus rose £14.8m to nearly £17m.

Metropolitan Thames Valley Housing (MTVH) had the largest share of net surplus at 627 per cent, which was due to the fact its £40.97m sales surplus was larger than its total pre-tax surplus of £6.54m. The lower pre-tax surplus was down to a number of one-off costs associated with the group’s merger (between Metropolitan and Thames Valley Housing), which completed in 2018, said its chief financial officer Ian Johnson.

“There’s a non-recurring cost in operating surplus of just over £5m and non-recurring cost in finance costs of just under £78m, which are associated with the merger. So, our adjusted surplus before tax is £89m.”

The RP was not the only organisation to have a higher sales surplus than its overall pre-tax surplus, with Weaver Vale Housing Trust, CHP, Housing Solutions, Plus Dane, Housing Plus, Knowsley Housing Trust and Orbit also reporting this. Many of these pre-tax surplus falls were down to one-off costs, such as refinancing, impairments or fire safety works. For example, Weaver Vale’s pre-tax surplus was reduced by £3.3m because of a fair value adjustment on refinancing, which took it to £643,000 – lower than the £1.4m it made from total sales.

RPs most reliant on open market sales

Interestingly, the data shows that nearly all of the surplus generated from open market sales (£146.5m) was made by the 20 RPs that made the largest share of their pre-tax surplus from this category of sales.

As already mentioned above, many of these RPs operate in London and the South, where house values are typically higher.

In terms of open market sales surplus as a share of total pre-tax surplus, MTVH had the highest percentage here, with 54 per cent from a surplus of £4m. However, this percentage was skewed by the one-off cost explained earlier.

In terms of value, though, MTVH’s £3.5m does represent an increase on last year, when its surplus generated from open-market sales stood at £1.7m. However, Mr Johnson described this as “a relatively small part” of the group’s sales operations. He explained that the group splits its open market operations into joint ventures and sales carried out through its subsidiary. He added that increasingly “the sector is moving towards” joint venture set-ups.

Gentoo was next on the list. Open market sales profit made up nearly half its pre-tax surplus (48 per cent), with £6.3m. In contrast the group made nothing from first tranche sales.

Although open market sales represented a significant proportion of the group’s pre-tax surplus, this share had decreased since last year when sales generated from this tenure accounted for 73 per cent of its total pre-tax surplus. In its accounts for the year, the group said it had secured 20 per cent of its sales target for 2019/20.

It added: “Demand for new homes in the region remains strong and good mortgage availability continues as well as ongoing government support by way of the Help to Buy scheme and cuts to stamp duty for first-time buyers.

“A healthy forward order book and continued strong demand provides confidence that future trading remains on track to deliver both increased volume and profit levels for future years.”

RPs most reliant on first tranche

Of the 20 RPs in the first tranche table, only one made a surplus of more than £10m, and that was BPHA with £13m. In its accounts, the group described shared ownership as one of its core development activities for the year, including affordable housing for rent.

The group completed 190 shared ownership sales for 2018/19, up from 148 the previous year.

MTVH made a £6m surplus on first tranche sales, over £2m more than the group’s outright sales. Speaking generally about the first tranche market, MTVH’s Mr Johnson said: “It’s definitely been the case that first tranche sales have held up better than open market sales through the downturn. We’ve found the demand for that has held up quite well in the context of the overall market, with fewer cancellations.”

He added: “It does feel like, while the last calendar year was a relatively low year, it has bottomed out and we’re hoping now that things could improve.”

RPs most reliant on fixed assets

The 20 RPs for which fixed asset sales made up the largest share of pre-tax surplus made up a third (£276m) of the fixed asset surplus made from England’s largest 150 RPs (£831m).

MTVH came top of this list with a fixed asset sales share of 478 per cent, again due to the one-off cost. Mr Johnson said that much of this surplus was made up from staircasing.

He said: “We’ve got one of the biggest portfolios of shared ownership units, with 9,000 units and another 3,500 units with redemption loans, so that’s what we’ve built and sold in the past and inevitably people are going to staircase.”

Weaver Vale Housing Trust and Knowsley followed, but they too had higher sales surpluses than their overall pre-tax surplus, which would have impacted the percentage share.

Trafford Housing Trust saw its fixed asset surplus as a share of pre-tax surplus nearly double to 87 per cent, from 44 per cent. This was because its pre tax surplus nearly halved to £4.4m while its surplus on sale of fixed assets rose £229,000 to £3.8m.

The group said this included disposing of properties that needed “considerable investment”, staircasing of shared ownership properties and the sale of property through the Right to Buy.

Elsewhere, the group had made a small profit on first tranche sales (£0.1m), in comparison to a deficit last year (-£0.1m). But it made a loss on open market sales (-£0.2m), compared with a surplus last year (£2.1m).