Complete British News World

“Cheaper for the state and municipality to own real estate themselves”

Commercial real estate has in recent years become a concept in debate. The prospectus from one real estate company after another shows how profitable it is to invest in buildings that are then used by public activities in the state, district or municipality. It can be around everything from nurseries, schools and health centers to more technologically advanced buildings such as bathrooms and hospitals.

The statistics in this area are not very detailed, but we know that the volume of transactions and the number of players working with the characteristics of the community has increased sharply. From 2013 to 2020, the value of community property sales increased from just over SEK 5 billion to over SEK 30 billion.

There is hidden behind this development A couple of objective factors are understandable. The need for public, not least municipal, investment is increasing in many places as a result of population growth and shifts in population composition.

Equally important is that interest rates were low. Companies in community real estate were able to borrow very cheaply and then invest capital in the properties they were able to rent out at levels that allowed to offset both the interest costs and the large margins they were often promised. investors. In many cases – some very extreme – billions of dollars were made.

Significant differences in efficiency are needed to cover the significantly higher financing costs that come with more expensive loans and the yield requirements of private actors.

Although the logic of this development is understandable, there are strong reasons to question whether it is beneficial to anyone other than the respective owners of capital. The mere fact that billions could have been made on what in many cases has to be said as some kind of traditional and fairly simple business, should raise questions.

See also  Allsvenskan clubs are richer than ever despite the pandemic

Let’s start looking The cost of financing community property. The municipality that owns a school is currently paying an interest rate of 0.88 percent on the capital used to construct the building. The interest rate level corresponding to a particular player drops at just over 1 percent and above. In addition, the private player wants a profit, which means that the cost of capital is between 3.5 and 8 percent.

Both the high interest rate and the profits must be covered by the rent that is being charged. If, rather than owning the school, the municipality chooses to lease the building from a private operator for the long-term, it is usually about doubling the costs. This in and of itself strongly suggests that it is better for the state, regions, or municipalities to own themselves.

But, for example, proponents of private community property, state, districts and municipalities cannot make large-scale investments as required. Then they become burdened with debt. So, it is better if they rent instead, it also offers more flexibility.

It is logical that On the whole is not true. Whether the state, regions or municipalities in general are burdened with debt. They usually have room to borrow if needed. If you look at the most active municipalities in the region, the majority tend to be developing municipalities with a strong financial position. In addition, these long-term leases are also liabilities that usually must be equated with loan debt on the balance sheet.

Altogether, this suggests that the reasoning about easing municipal finances was not the most important in practice.

See also  Putin and the Oligarchs: This is how they hide their wealth

The logic around flexibility can also be called into question. These are generally property that the state, districts, and municipalities in any way need to house the activities that they are required to carry out. These agreements are often long-term and no more flexible than private property. Flexibility often consists in the fact that as the owner of your property you leave it when the term expires, while you are without title with your own property owner when the contract term expires.

Why is this anyway? That the number of privately owned community property is increasing? In part, this may have something to do with the fact that the time perspective in politics is sometimes short-lived. It can be attractive to associate with new projects geared towards the future. If this could be done without increasing the public actor’s debt or interest payments, it could of course be more attractive. Initiatives taken can then be largely paid for by future users or voters bound by the agreements made.

Are there then no arguments for the property of the community that bears? What is usually emphasized is that private property owners can build and operate real estate more efficiently. This is of course conceivable, but it is mostly a matter of faith; Experimental support is not available. Significant differences in efficiency are needed to cover the significantly higher financing costs that come with more expensive loans and the return requirements for private players.

The least you should be able to order In every decision to select private financiers for community property, the expected efficiency gains, which would offset higher financing costs, are reported and clearly examined.

See also  Influential creators are growing fast with well-known brands

One part of the efficiency argument can be assumed to be greater if it pertains to more complex real estate projects in terms of both build and operate (think New Karolinska Solna, although it’s hard to model). However, studies of this type of project, especially in the UK, do not support any great optimism.

In practice, it has proven difficult to achieve the highest efficiency. Alternatively, there is a risk that such arrangements will become more costly due to the bureaucracy of contracts in which both the public and private sides will have to invest significant resources.

This is of course important To carry out both construction and operation in the best possible way. In this context, taking advantage of the good special efficacy available is natural. These may be new forms of special operations in public activities. Several attempts to design new efficient construction contract schemes have also been developed in recent years. We think about things like job purchases or job contracts. It must be used and developed.

On the other hand, there is reason to look with great skepticism at what is the cornerstone of the phenomenon of community properties: allowing private actors to finance and own fairly simple property often destined for public activities. There are good reasons why it would be cheaper for citizens if the same state, regions and municipalities own the real estate in which they work.