In a bizarre twist of fate, private property investors may shortly be actively looking to house criminals.  Up to now, one of buy-to-let landlords’ biggest fears was having a crooked tenant, so all potential tenants were routinely referenced to ensure they had no criminal records. 

However, a new scheme is being considered by the Home Office to attract small investors to fund the building of three new super prisons.

The prison population has increased year on year since 1997 and 8,000 new cells are needed to house this increase at a cost of £1.5 billion.  As this money has not been forthcoming from the Treasury, Home Secretary John Reid is looking at funding alternatives.

On the 1st January this year the Treasury launched a new system called Real Estate Investment Trusts. A REIT is a company that owns and manages income-producing property - either commercial or residential.  90% of this income is distributed to shareholders in the form of dividends and in return the company is exempt from corporation taxes.  REITs are already in existence in the USA, France, Australia and Japan and investors have shares in hospital buildings and car parks as well as shopping centres and prisons.

Under this scheme, money invested in REITs could be used to fund the new prisons which would be in turn rented out to prison operators.  Privately run prisons are not a new thing.  Companies such as GSL, Serco and G4S Justice Services have been managing prisons since the 1990s and to date there are 11 privately run prisons in the UK.

Property investment expert Ajay Ahuja points out there are a number of issues to be resolved before this can be considered as a good investment.

“REITs have supposedly been a success in the USA, but will it work over here?” Ajay Ahuja asks. 

Before going ahead with an investment of this kind, you have to consider:

• The promised yield
• How easy it will be to increase the rent or will it be regulated
• Whether the prison is charged on a room by room basis or a flat rent for the whole building
• Whether there is a trend of imprisoning criminals or not
• What you could do with the building further down the line if it doesn’t work out as a prison, i.e. could it be turned into flats or a private hospital, etc?  Basically is there a plan B?

Ajay Ahuja added, “I plan to keep an eye on this idea and am very much looking forward to seeing the prospectus when it comes out!”

For more information or to contact Ajay Ahuja visit his website at http://www.ahuja.co.uk