Managing Director Update - February 2021

MD Update - February 2021

January and February seem to have flown by and slowly the evenings are getting lighter and the weather a little warmer.  I hope this update finds you all well.

This will be another challenging year, with Brexit continuing to work itself out, particularly in financial services, with continued management of the pandemic affecting how and where we work, with recovery and regeneration coming to the fore, with the Government and industry response to the Grenfell tragedy rising up the public agenda, and with a number of important Government and industry reviews taking place. 

I set out below the policy issues to which AREF will be responding this year. I shall be emailing all members separately soon, with news of our proactive work on our longer term priorities, and some internal steps that we are taking to improve the working of AREF. 

Policy

A number of important pieces of policy work continue from 2020, although activity levels on some have died down for the moment. 

1. Material valuation uncertainty and the consequent fund suspensions and re-openings
   We continue to monitor, on a confidential basis, redemption levels in the funds which have reopened.  The RICS has stated that widespread material valuation uncertainty declarations are not generally required despite the continuing lockdowns. 
    
2. FCA Consultation CP 20/15
   The FCA received over 70 responses last year and have acknowledged that work needs to be done across the ecosystem of platforms, depositaries and transfer agents before mandating extended notice periods, and that this will be a prolonged process.  This work may be rolled into that of the Productive Finance Working Group, mentioned below.  We are maintaining contact with the FCA.
    
3. CVAs and the moratorium on evictions
   The moratorium was extended to the end of March 2021 and at the time government said that this is the last extension.  That announcement was made before the 2021 lockdown and the emergence of the new coronavirus variant and it may be that some form of moratorium is retained for a limited period of time.  The Property Industry Alliance (PIA) has fortnightly calls with Ministry of Housing, Communities & Local Government (MHCLG) and is remaining in close touch with them on this topic. 
   
   Three important new policy issues have come over the horizon this year:
    
4. The RICS Independent Review of Real Estate Investment Valuations
   The RICS has started an Independent Review of Real Estate Investment Valuations under the leadership of Peter Pereira Gray of the Wellcome Trust.  A Call for Evidence has been put out, with a deadline of the end of March.  Members will no doubt be making their own individual responses.  In order to help inform those responses AREF is in the process of setting up a member round-table with the RICS in order for them to outline the scope of the review and for members to ask questions and make preliminary responses.  The event will take place on Wednesday 17th March at 9:30am - details here. 
    
5. Commercial landlord and tenant legislative review
   The Government has announced that it will be conducting a review of landlord and tenant legislation, led by MHCLG.  This is a very significant piece of work which is likely to cover the 1954 Act, new lease models (particularly turnover rents), user covenants (which may overlap with a review of the planning system), occupational licences and the effect of the coronavirus on property use patterns and the landlord/tenant relationship. 
   
   The PIA has had a preliminary discussion with MHCLG.  The scope and process of the review and the membership of the review panel are still under discussion and will need ministerial sign-off, but we understand that the likely timing is for evidence to be gathered in the first half of the year, for recommendations to be developed over the summer and for Government to make a formal response before the end of the year.  One notable omission from the scope is the CVA.  AREF and other PIA members are pushing hard for its inclusion. 
    
6. Grenfell
   Over three years after the Grenfell fire, the issue of who pays for the costs of replacing dangerous cladding (and also addressing other safety problems that have since been identified) has risen to the top of the Government’s agenda.  On 10^th February the Government announced financial help to pay for ACM cladding removal in the form of grants for high-rise buildings and low-interest loans for medium-rise buildings.  This help will be financed through a levy on planning permissions for certain high-rise buildings in England and through a new tax introduced in 2022 on the low-rise residential building sector. 
   
   This issue may continue, as the announcement did not cover non-cladding safety problems which have emerged since the Grenfell tragedy, such as badly-functioning fire doors and sprinkler systems, and safety barrier breaches from utility installations.  It also didn’t cover low-rise buildings with cladding problems.
   
   AREF, the Investment Association (The IA) and members had previously been involved in discussions with UK Finance, the Building Societies Association, MHCLG and with Number 10 about a number of private proposals which had been made in late 2020.  AREF members expressed their readiness to participate in developing solutions, and AREF remains ready to re-enter dialogue with the government and other interested parties.
    
7. The Productive Finance Working Group
   The Government has instigated the Productive Finance Working Group (PFWG), tasked with the delivery of the Long Term Asset Fund, designed to allow DC pension and private savings to invest into illiquid assets. The Group is chaired jointly by the Treasury, the Bank of England and the FCA and membership is wide, including fund managers, trade associations, wealth managers, platforms, insurance companies, investment consultants, lawyers and large pension schemes.  The remit includes developing a structure and a regulatory framework that meets the needs of a broad range of investors, and putting in place the operational infrastructure, including distribution channels and investment platforms, necessary to support non-daily dealing funds.  AREF is involved through its membership of the Investment Association, which is a member of both the Steering Group and the Technical Experts Group of the PFWG, and we will remain in close touch with developments, which are crucial to the future of our industry. 

I hope that you and yours remain well as we hopefully start to see a way to the lifting of lockdown restrictions, and I look forward to working with you all. 

Paul Richards