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2013 - Groundhog Year?

Can we see any light at the end of the tunnel? Ian Wilkie, Director of Healthcare Property Consultants, comments on 2012 and his thoughts for 2013.

Looking back at the HPC market forecast for 2012, the key factors I expected to see engaging the sector then were; increased activity in Cost of Care negotiations with local authorities; ongoing activity in relation to the former Southern Cross estate; lack of bank lending; loss of beds from the sector due to ageing property assets and increased insolvencies.

Whether it is for the better or not, it is difficult to see things looking much different throughout 2013. The seemingly interminable fallout from the banking crisis just rumbles on and on. The latest headlines at the time of writing being that the Banking Standards Commission, having reviewed the Government’s draft Financial Services (Banking Reform) Bill, is calling for significantly tougher regulation than that proposed. It is understandable why that should be the case, given the apparently infinite and hugely creative variety of methods the banking sector has come up with to shoot itself in the foot, however it is hard to see that such stringent regulation is in any way going to encourage lending, for the foreseeable future at least. The Government has to find a delicate balance between satisfying those baying for the blood of bankers without turning off the tap altogether. Not easy, but this is a boil which must be lanced swiftly, as uncertainty is arguably more pernicious than inappropriate legislation.

To my mind, this is the single biggest factor affecting the long term care sector. It is stifling growth and innovation and new development; it is leading to the failure of care home operators, which is directly affecting those whose interests should be uppermost; it is creating a relatively stagnant care property estate throughout the country, with ageing assets not being replaced at anything like the required rate; it will lead, ultimately, to a shortage of beds which will one day create a crisis of its own, with market forces driving up the costs of care for commissioners. I have said it before, but the only thing keeping the cork in the bottle is the suppressed property market. As soon as the housing market starts to recover, there will be a stampede of worn-out private care home operators happy to close the doors and sell to the developer making the highest offer.

Until then, the sector will continue to juggle existing care homes between operators, much as it did in 2012, and it will continue to negotiate with cash-strapped local authorities over the true cost of care.

Ian Wilkie

January 2013