BOURNEMOUTH council is implementing ambitious but controversial plans to invest millions of pounds in property.

In July last year the borough announced it would be investing up to £125 million in the commercial property market – cash borrowed at low rates from the national Public Works Loan Board (PWLB) and other councils.

The council says its investments, which mirror those of an increasing number of authorities around the country, will bring in revenue and reduce the impact of cuts to its Government grant, and therefore cuts to services.

PWLB loans are available at ‘sovereign rates’ which are currently around two per cent, while returns from commercial property are usually between five to 10 per cent.

Bournemouth council says a £100m investment in commercial property will typically yield £1.5m of income a year, which could provide more than 10 per cent of the savings it needs to make by 2019-20.

Yet questions remain over whether public bodies should be competing in commercial markets using taxpayers’ cash, and whether councils have the know-how to properly identify and avoid the risks involved.

The Government says risks include a downturn in the property market, councils being led into paying more than the market value, national policy changes restricting councils’ freedom to act post-purchase, and “lack of expertise in council staff teams, leading to poor acquisition decisions”.

Bournemouth council recently identified the Mallard Road Retail Park as the mysterious £49 million ‘strategic asset investment’ members agreed in September.

On Tuesday, the borough approved plans to fund the construction of a hotel next to the Bournemouth International Centre, which would be run by a private firm paying rent to the borough.

The leader, Councillor John Beesley, told the Echo: “After taking advice from independent experts, the council is confident that the construction of a new high quality hotel next to the BIC will help drive significant improvements in Bournemouth’s economy, whilst also providing a sound investment for the council, helping to enhance the town’s conference and tourism offer.”

And Cllr Philip Broadhead, cabinet member for economic growth, said: “It is more important than ever that we target capital investment on projects that provide facilities and opportunities for future generations, and one of the benefits of the hotel development proposal is that the return on investment can make a significant contribution to the protection of frontline services.

“It really does tick a lot of boxes – adding to the growth of ‘Boomtown Bournemouth’ whilst generating income to make sure we protect services for council tax payers.”

Yet town tourism industry figures contacted the Echo concerned that the council’s income from the scheme was unlikely to meet its expectations, and claiming its officers lacked the commercial experience to spot the danger.

Developers have contacted the Echo concerned that they were being secretly outbid for sites by the council using taxpayers' cash.

A Government briefing published last month said only a third of 265 councils surveyed had invested in property since 2010, most in the South East. And of these, 10 accounted for 60 per cent of all expenditure.

One major spender is nearby Eastleigh Borough Council, which has bought shops, banks, pubs and offices, and invested some £40m in the Ageas Bowl cricket ground.

The Government’s advice on such purchases has not been clear-cut.

Councils are supposedly prohibited from borrowing money to invest purely for financial gain, and therefore must demonstrate a community benefit to their investment. These rules have been relaxed in guidance released last month.

In a report the Ministry of Housing, Communities and Local Government said: “The Government recognises that a one size fits all approach is not suitable given the increasing variation in the objectives and nature of local authority investment activity."

Under the Localism Act councils can invest purely for financial gain provided the property is managed by a private company.

Bournemouth council set up Seascape Homes & Property in November 2016 so it could let homes to residents on profit-making assured shorthold tenancies.

So far the authority has leased some 23 properties to Seascape as part of its ongoing strategy to tackle homelessness, most in East Cliff and Springbourne and Kinson South, and further homes will be purchased over the next three years.

The council has also formed the Bournemouth Development Company (BDC), a public/private partnership with Morgan Sindall Investments, to develop housing schemes on borough-owned car parks.

Developments are completed, under way or earmarked for the former Madeira Road and Berry Court car parks, the St Stephen’s Road, Durley Road, Winter Gardens and Bath Road North and South car parks.

The council’s chief investment in the partnership is the land, while the investment firm provides cash in exchange for a 50 per cent cut of the profits.

The council’s share of the profits is reinvested in “new sites, infrastructure and open spaces”.

It remains to be seen how successful the council's new strategy, aimed at taking some of the burden of funding cuts off council tax payers, will be.

Some past council investments have ended in failure. In 2014, the council launched a fund dubbed the ‘Bank of Bournemouth’ to lend to businesses.

Forecast to yield as much as £24.2m in 10 years, and costing £1.2m to set up, it was suspended 18 months later after lending to just 22 businesses, due to “changing financial market conditions”.