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CARE HOMES

a business sector causing concern

At a time when problems in the agricultural, transport, engineering and retail sectors have been well aired and for varying reasons weak Euro/cheap imports/price of crude oil/escalator tax on transport fuels and so on another sector HOMECARE has been experiencing problems of its own. They are unlikely to go away and for many proprietors the situation will get much worse over the next few years.

This important sector grew out of the Government's ‘care in the community’ programme some 15 or so years ago and now plays a significant part in assisting a growing population of the elderly and the infirm, in particular. Gone are the days when the elderly relied on their children, the local hospital, the local old folk’s home or the seaside hotel (if you could afford it!). In, are the local Care Homes, subsidised, in part or whole, by the Benefits Agency for those that do not have adequate income or capital; at full cost to the rest.

It didn’t take long for the sector to get a bad name as the entrepreneurs swiftly converted old houses, old hotels and guest houses to ‘granny farms’, and all that went with it! Neither did it take the Department of Health long to bring in a series of regulations to address the emerging problems. The sector from its early beginnings was well funded by the High Street banks and as it grew so did the lending specialists all chasing a growing market, with good margins for well secured lending. The increased regulations provided fresh lending opportunities for the well managed enterprises, but we have seen a steady trickle of closures where the quality of the management has been debatable. In the past 5 years or so, we have seen the growth of new, large, professionally run establishments many of which have been funded in the stockmarket.

So far so good…..or is it? The Department of Health has been consulting with the care industry under the heading ‘Fit for the Future’ and the majority of their proposals have received overwhelming support. It sets minimum standards that will send shudders through parts of this important sector and already has caused banks and other lending institutions to draw back from parts of the market.

As announced by the Department of Health on the 21st July 2000 the new regulations include:

1. Shared rooms in existing homes may constitute no more than 20% of all overall resident places from 2002;

2. The standard for single rooms in new care homes will be 12sq m from 2002;

3. Wheelchair users should have rooms of 12sq.m and door widths of 800mm for their own accommodation and communal rooms;

4. Each resident should have in addition to (3) a minimum of 4.1sq.m of communal space within the home;

5. The standard for single rooms in existing care homes will be 10sq.m from 2007.

We understand that these specific space standards will not apply on the sale or transfer of an existing home to a new owner during the transitional period 2002 to 2007 BUT all residential care homes will be expected to conform to these standards by 2007.

We have already come across a number of situations where the maximum double occupancy will have a significant effect on the income stream in one case it would drop from 30 to 21 and another where it drops from 28 to 19! We have come across others where meeting the specific space allocations will be exceedingly difficult unless the proprietor is able to raise significant capital with a reduced income stream.

Our understanding is that the new regulations will phase out significant numbers of beds over the next few years and that new build homes will not be able to meet demand. Most Banks and institutions currently are not considering any new or increased facilities for units of 30 bed or lower (under the new regulation standards) the favoured client is 60 beds minimum with a track record of competence.

It follows that under this environment property values of the smaller units will drop significantly those that are sold will need significant capital to accommodate a change of use and in some traditional retirement areas it will be very difficult to find a buyer.

P & A Sheffield have significant expertise in the Residential Care market if you have clients with emerging problems or are likely to have serious problems under these new regulations, speak to Jeremy Priestley on 0114 2755033 without delay.

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