Why I have reservations on electronic sphygmos
Dr John Couch looks at the thorny issue of buying your surgery in today's changing practice climate
Historically around 50 per cent of practices have owned their own premises at any given time. However, over the last 10 years many practices have questioned the traditional wisdom of property ownership.
Some have gone further and either moved to new privately owned premises or sold their existing building to one of the many private companies in this sector. So against this rather pessimistic background, is there any future in owning your own surgery building?
There are two main problems. The first of these is a change in GP workforce. Fewer young GPs now want to become partners, especially in the early years of their career. This is a generational phenomenon. Professions such as dentistry and law face the same issue due to increases in portfolio careers, part-time working and career breaks.
Taking on a large loan for a property share is seen as an encumbrance when moving on, and an unnecessary risk.
As older partners retire and cannot be replaced, naturally expecting to have their property share purchased, existing partners can face a real crisis of confidence. Do they increase their own financial commitment? What happens if other partners are also nearing retirement or the practice has few partners?
What if an extension or new build is needed? Not surprisingly some practices have chosen the certainty of selling up now to the uncertainty of a dwindling number of partners servicing an ever-increasing loan.
The other factor is the increasing difficulty in improving, extending or building afresh. Cost-rent is now a distant memory. Significant improvement grants are heading the way of the Dodo. Even notional rent on extensions or new builds is far from guaranteed.
There are many hoops to jump through (and expenses to incur) with much competition for cash-limited amounts. Since most practices start to bulge at the seams again around 10 years after increasing floor area, the ability to expand and improve services further can be severely limited.
Remember the benefits
Although it is difficult to take an objective view given the above, this is exactly what must be done. Ask yourself why private companies are queuing up to take over GP buildings.
The answer is this is the best 'buy to let' scheme in town. The rent reimbursement offers an unequalled annual return on investment and, underwritten by the NHS, is about as secure as you can get. In addition, in the medium- to long-term at least, there is excellent potential for capital growth.
Go a step further and consider dentistry. This has considerable private company involvement, but many dentists have seen the light and have bought up other practices, staffing them with employed professionals.
Clearly this is another dimension of financial risk but the rewards are commensurate. Could general practice go the same way? The answer is yes. Just look at the changes in nGMS. In all areas alternative health organisations can now bid for certain enhanced services and all services in under-doctored areas.
On average premises owners receive around 7-8 per cent annual return via rent reimbursement and another 5 per cent from capital growth. Loan interest is currently around 5.25 per cent. Tax is payable on rent reimbursement but tax relief is granted on loan interest, both at a GP's top tax rate.
Therefore a net positive return of around 1.35 per cent is achieved. This means that most GPs achieve close to or actual breakeven from the start, allowing for capital repayments also.
Triennial rent reimbursement review is likely to soon push the return into net profit and a significant positive return over a career.
The extra 5 per cent per annum capital growth will provide a healthy capital gain on leaving or retirement, any capital gains tax minimised by a variety of reliefs.
Since the average GP property share is £150,000, you could receive a figure close to this on retirement. Even short-term ownership has produced large profits for GPs in the last 10 years of rising property values.
Modern premises owning
There are changes that can help restore confidence among existing property-owning partners. The first is to meet and air the problems, uncertainties and potential solutions.
Plans need to be made to meet any likely scenario. Study the return on current investment and the changes in local property values. An up-to-date valuation, for around £800, can provide much needed cheer.
What are the current number, ages and plans of the existing partners? It will help simply knowing that your colleagues will not leave you as one of a few or even sole property owners.
All prospective and existing partners want to be sure of sale when the time comes. Ensure there is a clause in the partnership agreement guaranteeing a sale after a fixed period, or sale of the property if this cannot be achieved after say 12 months.
The implication of this is that if you cannot find a new partner interested in buying in, the existing partners must then buy the share themselves or sell the building. If there is little or no net cost in buying an extra share, the remaining partners are likely to follow this course. If not, this is unlikely to mean the end of the partnership. You have the option of selling to a private landlord /PFI company and staying put, selling and finding alternative premises to rent, or getting an investment company to build new premises to rent. All of these are now viable options as many companies will oblige.
As for expanding, provided a good business case can be made (and the rent reimbursement is a critical part of this), a partnership may still consider going ahead itself. The size of the loan may be daunting but if the returns are still positive less courage will be required!
Remember also that planning internal or external changes to your building is generally easier without the bureaucracy and restrictions that can be imposed by a third-party landlord
There is another potential scenario. After a few years of either salaried posts or non-property owning partnership, some GPs may start to look at their richer colleagues and realise that premises owning actually makes good business sense.
John Couch is a GP in Ashford, Middlesex