Minhbach's Weblog

February 18, 2013

Is a Concrete House a Concrete Investment?

Filed under: House — minhbach @ 8:47 pm

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Whilst subsidence, major structural problems, mould, damp and general ‘need for modernisation’ issues in a property are fairly obvious to see, I do also come across houses which look perfectly sound and in reasonable condition to the untrained eye, but which are harbouring potential nightmares to unsuspecting purchasers. A classic example of this is properties of ‘Non Standard Construction’ and to all intents and purposes although these properties may not scream out ‘problem!’ they are usually unmortgageable and therefore can be difficult to sell.

Such was a property I visited in Truro recently. The new owners who had acquired the property at auction were cash buyers and so weren’t warned of the possible issues by a mortgage company carrying out their valuation on the house. Unsuspectingly, they bought a house (without any survey of their own) which was an ex local authority ‘non-standard Cornish unit’. Whilst they’re intentions were to rent out the property long term (and therefore had no immediate reason to sell) they could find that the capital appreciation of the property is hindered by this unusual construction and certainly any future buyer would also have to be a cash purchaser.

So what is a property of ‘Non Standard Construction’?

Well, firstly, to answer the question, let’s consider what are ‘Standard’ or ‘Traditionally Constructed’ properties. These are usually defined as being built of:

• Bricks and Mortar with either a slate or tiled roof
• Stone Construction having either a slate or tiled roof

So Non-Standard construction is a house that isn’t built of brick or stone, and doesn’t have a tiled or slated roof – such as Concrete House Constructions, PRC Houses (Pre-cast Reinforced Constructions), and Timber-Framed properties.

In this case, the property was concrete and like most properties of this nature, will appear on what is known as the ‘defective list’ and therefore is not deemed mortgageable unless they have been ‘repaired’. This means that the concrete construction has been bricked to a certain standard.

Concrete Houses

In the case of our house in Truro, it was what is known as a ‘Cornish Unit’ – houses which came about after the second world war as a quick, cheap form of housing. Concrete was by far the most successful and widely utilised building material and basically these houses are made from pre-fabricated walls, big slabs of concrete that are pinned together.

Although this property was down in deepest, darkest Cornwall, you could find one of a similar construction anywhere in the country. And they aren’t necessarily that rare either – more than 400,000 pre-cast reinforced concrete (PRC) dwellings were built throughout Great Britain.

The various designs shared the common thread of off site manufacture of the components in “factory” conditions, with speedy on-site construction and thereafter, rapid occupation. These homes were often in excellent locations with generous accommodation and large gardens and proved to be a success with the local authority tenants so if you do find one on the open market, chances are it will have a lot going for it. However, this is certainly a case of ‘buyer beware’ since over time, the lightweight nature of the components that was such a positive feature of these system-built properties, ultimately also proved to be their Achilles’ heel.

The Problem with Concrete Houses

In the early 1980’s, ironically coinciding with the newly introduced ‘Right to Buy’ legislation, defects were discovered in the load bearing columns of many of these PRC house designs leading to large numbers of them being designated as “defective”. Essentially the steel rods used in the construction of these properties, was low quality and over time they have suffered from corrosion and metal fatigue – weakening the structure of the house. The outcome was a decision by the major lending institutions that they would no longer accept such properties as satisfactory security for mortgages. Thus, the properties were blighted and difficult to sell other than to cash buyers.

Repairing PRC Houses

Purchases of local authority PRC homes made prior to 1984 qualified for a Government Grant to assist in a complete PRC repair. However, unfortunately that grant is no longer available and many local Councils do not have funding available for the structural repair work to PRC Council homes and houses, so it’s down to the owners to foot the bill.

The PRC repair process is dependent on the design of each type of home and will usually take between 5 and 8 weeks to complete. Typically the process involves removing the concrete panels completely and rebuilding the structure with traditional block work and brick. The house will have scaffolding surrounding it and be supported on props during the work. Windows will be boarded up to prevent dust and mess entering the inside. Although this will obviously involve some upheaval, you wouldn’t normally be required to move out of the property – although clearly, it is unlikely that tenants would accept this level of disruption so in the case of our Truro investors, they would probably loose out on rental income whilst the works are being carried out.

All work is overseen by independent structural engineers (i.e. they do not work for the building company) who will inspect the work at various stages and will issue something termed as a ‘Certificate of Structural Completion’ when the work is carried out to their satisfaction. This will make the property acceptable to most banks and building societies.

Some companies offer a ‘brick over’ of the concrete walls and resin treatment of the joints underneath – this isn’t acceptable to most of the high street banks for mortgage purposes, although it’ll be cheaper than a ‘full’ repair.

The Good News

Not forgetting that PRC properties can be picked up for much less money than similar properties in the area that are of standard construction and as already mentioned, many come with good sized rooms, large gardens and great locations, once a PRC repair is completed it can signficantly increase the value of the property. Having a full repair done will give the property a complete ‘face lift’, replacing the dull concrete panels with new brickwork, ensure its longevity and all importantly, make it acceptable as security for a mortgage.

For a Cornish unit of the type I saw in Truro, the likely cost to our investors would be in the region of £25-£28,000 – something which they hadn’t budgeted for! However, the good news is that once the work had been done, a further £50,000 could be added to the market valuation so its certainly worth doing, least of all to protect the long term investment already made!

For more information on this topic, please visit the site store to order your SIGNED copy of Martin’s book, ‘Teach Yourself: Making Money From Property’ available for just £9.99 plus P+P.

Alternatively join me and my team on one of my Special 3 day Property Training Weekends, when we’ll teach you what you need to know to become successful as a property investor or developer – and help you avoid costly mistakes.

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