CIVIC chiefs are ploughing £65m into buying real estate across the country as part of a drive by the cash-strapped council to generate fresh income to plug a black hole in its finances caused by Government cuts.

Council chiefs claim that taking advantage of borrowing money at a cheaper rate to create an investment portfolio of properties such as retail parks, offices and hotels is a “reliable” way of clawing back millions of pounds lost to austerity.

But critics have hit out at the plans as a “pantomime” warning that “property speculation” could be putting tax payers money at risk.

The row comes after the council announced that it is being forced to make £42.3m worth of cuts over the next three years which will include more job losses, a rise in council tax and moving more council services online.

As previously reported in the Echo, opposition politicians are urging council bosses to fight for a better deal from the Government, as the lion’s share of £24.6m in cuts aim to be pushed through in 2017/18.

It comes after the authority has already slashed £92.4m from its budget in the past five years.

Council leader Simon Letts estimates that the council can generate £1m extra a year from profits from the new investment portfolio.

Under a new scheme local authorities can borrow money from the Public Works Loan Board (PWLB) at rates rates of around 2 per cent - compared to private companies borrowing cash at rates of up to five per cent.

The council is investing £65m into buying up commercial property and has recently secured three properties in combined deals worth £20.1m.

These are the include two retail warehouse properties in Southampton on Winchester Road, currently occupied by Wickes and Halfords, and a modern office building in Cambridge with technology giants Nokia and Virgin Media Ltd already in-situ as long-term tenants.

The council is also in talks to secure a deal to buy a hotel in Tewkesbury, Gloucestershire, which it hopes to complete next month.

The remaining cash will be invested into other projects, according to the council.

The authority also generates profit from rents from the tenants.

The property assets tend to yield between 4.5 per cent and 7 per cent, with yields stretching up to near 10 per cent on some warehouse deals, according to experts.

The city council say they are developing a property portfolio with assets both inside and outside of the city in a number of different sectors.

When asked why the authority was not investing more within the city to generate jobs and investment on their doorstep, Cllr Letts said the strategy was designed to diversify the types of assets owned so they were not reliant on a single market and added that the already buoyant property market in Southampton made it unnecessary for the council to buy up land to stimulate growth.

Councillor Letts, inset left, said that the investments have been carefully chosen from a “mixed” series of sectors to mitigate against any financial risks.

He said: “We’ve got offices, a hotel and retail, which are different sectors to create a reliable income stream.

“These are low risk reliable properties and we have done appropriates checks.”

He said that the council’s strategy differs from other authorities who buy specific properties in their own area to generate growth, adding that the city has a “vibrant” property market.

However, he pointed out that the council already owns areas of land in WestQuay, High Street, Above Bar and around Southampton Station which it draws income from.

But Councillor Keith Morrell, pictured left, leader of the city’s Putting People First Group, criticised the strategy: “We shouldn’t be funding public services by property speculation. “There’s a risk that the value of property can go down and that rental income can fall.

“If the Government has enough money for the council to invest £60m into office blocks why can’t they give them money to fund public services properly without this pantomime of property speculation.

“Why can’t they use the money to build desperately needed housing in the city so that they can get rents from that?”

Conservative opposition leader Councillor Jeremy Moulton broadly backed the council’s property investment plans and said: “If you can borrow at a cheap rate you can get a good return and it is a good source of income. But you can get into difficulties if you are investing locally for non-financial reasons.”