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Blog: Insolvency in a post-Carillion world

Keith Kilburn

Keith Kilburn outlines 10 issues for employers, professionals and the supply chain to consider in the event of the insolvency of a main contractor.

It is fair to say that the insolvency of Carillion has sent shockwaves through the construction industry. While this may be the catalyst for change, insolvency has unfortunately been a risk which has been realised all too often.

Looking at the current position, we set out the top ten issues that employers, professionals and the supply chain should consider in the event of main contractor insolvency.

  1. Payment cycle – check where in the payment cycle you are. Are there interim payments due? There are limited saving provisions under the Construction Act in the event of insolvency;
  2. Security – check the terms of any bonds or guarantees which have been granted. Are they valid? Do they respond to insolvency? Insolvency may not be treated as a default depending on how the bond or guarantee is drafted. What is the process for making a valid call?
  3. Termination provisions – check what the contract says about termination. What is the process? Do notices require to be issued? What is to happen to materials and equipment on site?
  4. Status of the works – accurately record and document the status of the works on the date of insolvency. This will be relevant to calculating what works remain to be carried out and what the entitlement to payment due to or by the main contractor is;
  5. Completing the works – how are the works to be completed? What form will the completion contract or contacts take?
  6. Defects – accurately record and document any defects which are discovered and the costs incurred for making good;
  7. Final account – check what the contract says about preparing a final account. When should this be carried out and what is the process?
  8. Step-in rights – check if the contract makes provision for step-in rights, where a party may have the right under a contract to take the place of the main contractor.
  9. Making a claim in the insolvency – is a claim to be made and what is the process and timing for that?
  10. Insurance – check any insurances which are in place and if they will respond to insolvency.

Insolvency and its consequences can be complicated in any construction project and our specialist team of construction lawyers would be happy to assist you if this is an issue you face.

  • Keith Kilburn is a managing associate at Brodies

This blog originally appeared on the Brodies website.

Blog: Retrospective applications: it simply doesn’t pay any more not to abide by the rules

Alan Jeffrey

Alan Jeffrey outlines the ways in which the Scottish Government is cracking down on retrospective building alteration applications.

Financial incentive is one of the most powerful drivers of change in human activity and the Scottish Government is employing this mechanism quite ruthlessly to bring the use of its building control system into line.

Just last year, it doubled and trebled the fees for dealing with unauthorised alterations to buildings, mostly domestic residences. But that is just part of a cautionary tale about which professionals and the public alike should be aware.

As well as the dramatic hike in fees, people who have not complied with the regulations in force will face substantial costs for professional advice, new drawings, inspections and almost inevitable remedial works.

The costs of not applying for a building warrant up front or obtaining a completion certificate at the right time are now verging on the prohibitive. Non-compliance, not to put too fine a point on it, is a mug’s game.

To be fair, it is understandable why the Scottish Government wants to impose uniformity on a system which currently is undertaken by 32 local authorities in their role as Verifiers, with each authority responsible for verification in its own geographical area.

Prior to May 2005, each authority treated retrospective applications differently, with most demanding plans showing the alterations then issuing letters of comfort or letters with of qualifications.

And there is no doubt that there was a problem to be addressed. When I left Building Control in 1990 to embark on a career in surveying, there were as many people applying for retrospective permissions as there were applying for Building Warrants.

Further, the long-term objective of the government has always been that the fees charged to users of the building standards system should cover the cost to public funds of providing those services. Ideally, the system should be wholly self-funded.

There has been no increase in fees since 2005 and, while the system has washed its face in good times, sharp drops in income caused by external events such as the 2008 recession has resulted in substantial deficits.

The consequences of becoming involved in applying for a Late Building Warrant, where work has been started but not completed, or a Completion Certificate, where the work has been completed but no Warrant has been obtained, can be far-reaching.

Such omissions ping up sharply on the risk radar of lenders and can have major implications for mortgage approval, potentially affecting transactions of several properties involved in a chain.

Home Reports, carried out by qualified professionals, have had the effect of uncovering a greater proportion of uncertificated works and solicitors are seeking more detailed professional advice on whether past alterations have the appropriate warrants.

Surveyors may have to call in expert advice on contentious issues, once again adding to the costs of historic non-compliance.

Each band of submission fees has been increased, with the minimum, for works costing up to £5000, increasing from £100 to £150. The fee for a Late Building Warrant is up to 200% of what appears in the fee scale and a Completion Certificate is up by 300%.

Obtaining permission retrospectively for the most simple warrant applicable alteration will incur a minimum submission fee of £450.

There are exemptions, of course, but the work involved in such exemptions must still comply with the Technical Standards.

In some cases, omitting to apply for the relevant permissions arises from genuine mistakes or misapprehensions about the nature, range and scope of the regulations. But this only illustrates the importance of seeking early, impartial, qualified advice before embarking on projects, however small.

Our Property Services Department provide a full architectural service.

We can help with retrospective permissions and drawings, land registration issues, boundary disputes, Energy Performance Certificates and a range of matters up to and including full SAP Calculations for new build houses.

The rules have changed. It simply doesn’t pay not to abide by them.

  • Alan Jeffrey is an associate in the Property Services department of the Dunfermline office of DM Hall Chartered Surveyors. He is an accredited RICS Mediator and is on the Scottish RICS Panel of Mediators.

Blog: Planning Bill lacks detail and shows modest ambition

Andrew Mickel

With submissions closing on the Planning Bill consultation last Friday, Andrew Mickel calls on politicians, communities, local authorities and housebuilders to work together to provide the change needed to deliver the homes Scotland needs.

Planning may not be the most exciting subject in the world, and most people don’t think about it often unless they are objecting to an application on their doorstep. However, the Scottish planning system has a massive effect on all our lives, not least by determining if, when, where or how much-needed new housing can be built. Whether major new developments are rejected or approved also influences Scotland’s economic growth. Did you know, for example, that every home built supports around four jobs?

In 2007, the current First Minister set out an ambitious target of building 35,000 new homes every year. Sadly we have retreated from this high water mark, despite the fact that with over 150,000 applicants for housing on local authority waiting lists and a growing population, there has never been a stronger case for significantly increasing housing supply in Scotland.

Ask any housebuilder if they could be granted one wish, and I’d bet that most of them would say they would like the planning system to be speeded up. While this is obviously in the best interests of housebuilders, economists would undoubtedly agree that a planning backlog negatively impacts our economy. Efforts to accelerate it, however, have not been particularly successful so far. If anything, it seems to be taking developments longer and longer to get through the approvals process.

A new planning Bill for Scotland, which is part of a wider process of reform, was introduced at the end of last year and is currently making its way through Parliament, with submissions closing last week. This Bill will introduce a series of changes to the current planning system, such as the establishment of an infrastructure levy, and revisions to simplified planning zones and compulsory purchase orders.

The Scottish Government is strong on rhetoric, shouting loudly about tackling the housing crisis, but putting this into practice is another matter. I want to see evidence of long term vision, but to me the planning Bill contains a worrying lack of detail and seems modest in terms of ambition. Perhaps this illustrates that the Scottish Government feels the system does not need fundamental change? Unlike the UK government, who have made their ambitions clear by promoting a housing minister to the cabinet and setting targets upon which they can be judged, the Scottish Government seems unwilling to set such a bar.

I believe we need to explore ways to improve capacity in local authority planning departments, which are under-resourced, with the aim of a quicker service and better quality developments. More ring-fenced resources for planning departments, for example. The new Bill offers little to reduce the complexity of application procedures or provide confidence in faster decision making. However, I am pleased to see compulsory training – and possibly even an exam – for councillors making planning decisions included in the Bill.

A real cultural change needs to be driven forward by the chief executives of every local authority in Scotland so that, instead of simply being reactive, planners are actively encouraging and supporting much-needed investment into their local areas.

I’d also like to see the First Minister publicly challenge members of her government who acknowledge the housing crisis at a governmental level, yet at a constituency level, lend their support to anti-development pressure groups.

In an ideal world, communities and local authorities would be able to plan their own growth, but they must be able to do this strategically. I do feel we need to involve communities at an earlier stage in the decisions that affect them, through more meaningful consultation, and this is something Mactaggart & Mickel strives to achieve. We also try hard to create sensitively designed new communities that complement their existing surroundings. If all housebuilders put a bit more thought into design and into early consultation with local people, perhaps we could reduce the level of objections, which would help streamline the planning process.

Our Airthrey Green development near Stirling, in conjunction with Graham’s Dairy, includes 600-home development and a national dairy centre. We are currently awaiting a decision from the Scottish Government on their application to proceed – and have reinforced the importance of this project in supporting Scotland’s renewed economic vision. As well as hundreds of homes, this will bring a primary school, neighbourhood centre, improved road infrastructure, a public park, 400 new jobs and a 50-person apprenticeship scheme to the area.

Another crucial benefit would be a £20m+ expansion of Graham’s dairy business in the form of a new dairy processing, research and development facility, helping to further support Scottish dairy farmers – and giving the country’s homegrown dairy industry a competitive advantage. This would be the largest single investment in the dairy sector in over 30 years.

Housebuilding is one of our most vital industries, which impacts on such a wide range of policy areas, from job creation and fuel poverty to quite simply putting a roof over everyone’s head. Isn’t it time we took down some of the barriers to making that happen?

  • Andrew Mickel is director of Mactaggart & Mickel Group

Blog: A cautionary tale for the UK construction industry

Peter Webb informs construction industry bosses about their responsibilities when it comes to paying workers/subs – and how to avoid a visit from HMRC.

Over the last twelve months two of my clients involved in the construction industry have suffered joint visits by the HMRC VAT and Construction Industry Team.

With the demise of local HMRC offices, this approach represents a change from previous HMRC practice.

These visits were ostensibly to ensure that the clients had complied with VAT and CIS rules but turned out to be more in depth than was expected. It is beneficial to share some of the main points arising from the visits.

VAT

Both clients were involved in the construction of new build domestic dwellings for large national house building contractors, on a self-billing basis. As such, the supplies were quite correctly zero- rated and both companies were able to make substantial reclaims of input VAT in respect of material and other relevant costs.

However, in both cases, the client was asked to prove that the correct VAT rate had been applied. The self-billing invoice was not deemed sufficient proof and because the HMRC teams had travelled from outside the area (one from Reading), there was no local knowledge of the sites involved.

The clients were asked to produce plans and planning permissions which, in both cases, they were able to do and thus prove their returns.

However, this complication added time and stress to the process.

CONTRUCTION INDUSTRY SCHEME

Here, the checks took a two-pronged approach:

  1. Were payments being made to bona-fide subcontractors or should the recipient be treated as an employee, in which case the liability to PAYE and National Insurance payable by the contractor would be that much greater? Also, this could result in the contractor being liable for Auto-Enrolment pensions, holiday pay, sick pay and paternity/maternity pay; and
  2. Where the sub-contractor was properly classified as such, had the appropriate verification steps been taken and were the correct tax deductions being taken?

In relation to the first area, much has been written in the press in recent times regarding the classification of workers and there have been two high-profile employment tribunal cases involving Pimlico Plumbers and Uber which have found in favour of employed status. It is therefore vitally important that, where self-employed sub-contractors are used, their employment status is reviewed on a regular basis. There is a useful tool for checking status on the HMRC website.

Once status has been determined, the sub-contractor must be confirmed with HMRC before any payment is made in order to ascertain the tax treatment, i.e. whether no tax, 20% or the higher, 30% rate should be used. If the wrong rate is used, it is the contractor that will be liable for any additional tax due together with penalties for non-compliance.

Peter Webb

These steps are easy to overlook in a busy working environment but failure to adhere to the rules can lead to substantial liabilities.

  • Peter Webb is a partner at Thomas Westcott Chartered Accountants

Blog: A recovering housing market means the time is right to ‘go private’

Paul Kelly, MD Briar Homes

Paul Kelly reveals the one change he believes would have a significantly positive effect on helping the Scottish Government reach its 50,000 new homes target.

Despite the shadow of uncertainty caused by all things Brexit, and a snap general election adding to the gloom, Scotland’s residential property market revealed glimpses of sunshine in 2017.

According to figures from estate agent Aberdein Considine, more than 28,000 Scottish homes were sold during the third quarter of 2017, up 4 per cent on July-September 2016 and 2,000 more than Q2.

New-build activity is also on the rise. According to the Scottish Government, almost 7,000 homes for sale were built in the first half of 2017 – an increase of 7.5% on the same period in 2016.

The year ended with good news for the sector, when the Scottish Government emulated their UK counterparts and scrapped LBTT for first time buyers on homes priced up to £175,000.

Indeed, they went further, pledging additional funding for skills bodies, colleges and universities to help address the construction skills gap. All welcome measures, although they don’t address the underlying issue; a widespread shortage of housing across all tenures.

Some industry watchers think that private house building could potentially slow down during 2018 due to the effects of Brexit, but I don’t see any real sign of this yet. Glasgow and Edinburgh in particular are extremely sought-after locations, with new-build homes especially popular. The combination of limited supply, consistent demand, and low interest, all lead me to believe that this will be another good year for most housebuilders.

As the managing director of a small family housebuilding business I have decided to re-introduce private housebuilding into our business again. Prior to 2008, we built a mix of private and social housing, but during that year I took the decision to ride out the tougher economic times by focusing on building social housing for registered social landlords such as Home Scotland Ltd, Wheatley Group and Sanctuary Housing.

This approach worked for us – we survived the recession and began to grow again from 2010.  In the last eight years our headcount has doubled and we now employ 22 members of staff.

With evidence suggesting that the housing market was in steady recovery, in 2016 we decided the time was right to re-enter the private housing market with the launch of a private homes arm that would provide high quality, energy efficient homes. At the tail end of last year, we secured our first planning permission – under our new Briar Homes brand – to build 73 new homes near Baillieston in Glasgow.

We plan to launch the first of these homes for sale in February and have a list of pre-registrations.  This gives me confidence that our timing is right and the development will be a success.

We are also awaiting a decision on a planning application to build 17 private homes in North Lanarkshire, and have land in place for a further programme of building across central Scotland.

On Briar Homes, we are working with the Housing Growth Partnership, a social impact investor backed by Lloyds Bank and the Homes & Communities Agency, who is partnering with small housebuilders to support the sustainable growth of their businesses. This support helps us to increase the number of homes we can build, with the ultimate aim of addressing housing affordability by increasing supply.

While I welcome the Scottish Government’s long term commitment to affordable housing, like most builders I feel that the target of providing 50,000 new homes over the term of the parliament will be very challenging to achieve.

This is due in no small part to the fact that efforts to speed up the planning process and free up more land for house building have not been particularly successful so far. To address this problem I’d like to see a presumption for planning departments to approve plans for affordable homes on non-contentious, zoned sites.

This one change would have a significantly positive effect, helping the government reach its target of course, but more importantly unlocking badly needed housing across Scotland.

  • Paul Kelly is managing director at AS Homes (Scotland) Ltd

Blog: Retentions: has the construction industry had enough following the Carillion disaster?

Jonathan Hyndman

By Jonathan Hyndman, Partner at Rosling King

The use of cash retentions is common place in the construction industry. Some £3 billion of retentions remain outstanding in the UK construction industry at any one time. With the collapse of Carillion, however, has the industry had enough?

By deducting and retaining a percentage of the value of the works from interim payments due to the contractor during the construction phase, developers can be seen to enjoy an element of protection against late completion and defects arising during the rectification period. Similarly, main contractors will deduct and retain a percentage from each interim payment due to their subcontractors again, to be released when the subcontract works have been completed and when the subcontractor has made good any defects.

Widespread and persistent failures to release retentions on time or at all, whether as a result of simple breach of contract or the insolvency of the party holding the retention, has encouraged contractors at all levels of the supply chain to price the risk of their retention not being released into the contract sum.

Reform of retentions in construction contracts has long been called for and The Construction (Retention Deposit Schemes) Bill, introduced as a Private Members’ Bill, received its first reading in the House of Commons on 9 January 2018; the Bill’s second reading is scheduled for 27 April 2018. Carillon’s collapse has brought the importance of the proposed legislation sharply into focus.

The intention behind the Bill is the introduction of secondary legislation requiring cash retentions to be paid into a government approved scheme and so ring fencing them from the other assets of the party holding the retention; the party to whom the retention is due will still be incentivised to complete on time and remedy defects but in the event of the retention holder’s insolvency, the cash retention, held in a government approved scheme, would fall outside the insolvency process and would be available for downstream release before any creditor distribution.

The proposals have met with widespread support through the construction industry with the statutory deposit scheme required in relation to deposits paid by tenants of shorthold tenancies to landlords being cited as a working example.

Reform of retentions is overdue and welcomed. The intended protection of retentions against upstream insolvency in the construction industry will unfortunately come too late for Carillion’s sub-contractors and suppliers.

Blog: Tools to weather an insolvency storm in the construction industry

Shona McCusker

In the wake of Carillion’s collapse, Shona McCusker looks at the contractual protections available to construction parties.

It has been over a week since one of the major players in the UK construction sector announced its insolvency. The news caused widespread panic in the industry and beyond. The effects are wide reaching and continue to unfold however, now that some of the dust has settled this article considers tools that may be available to construction parties, by virtue of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (“the 1996 Act”), to weather the ensuing storm.

Pay when paid provisions

The 1996 Act recognises the importance of regular cash flow to the contractor in a construction project, particularly downstream. One of the ways in which the 1996 Act aims to achieve this is through its prohibition on conditional payments. S.113 determines that any contractual provision making payment to the payee conditional on the payer receiving payment from a third party, known in the industry as a “pay when paid provision”, is ineffective.

But what happens when a third party upstream becomes insolvent leaving the payer without the means of paying the payee downstream? Does the payer still have to cough up? S.113 of the 1996 Act contains a carve-out for this scenario by permitting a pay when paid clause to operate when the third party has become insolvent. Where such a provision exists, a sub-contractor could potentially avoid having to pay out sums due to a sub-sub-contractor where the main contractor has failed to make payment to it by reason of insolvency. Not all contracts contain such a provision so it is important to check your contract before considering withholding payment.

Suspending the works

Part II of the 1996 Act further recognises that a contractor cannot be expected to perform its obligations under a contract where it is not being remunerated. Practically, this means that if a main contractor has not paid a sub-contractor sums which are due, the sub-contractor is entitled to down tools until payment is forthcoming. In order to exercise this right, the payee must first give at least seven days’ notice to the payer of its intention to suspend performance.

Terminating the Contract

There is no express provision in the 1996 Act, nor is there any common law right, that allows parties to terminate a construction contract by reason of insolvency. Whether or not a party has the right to terminate a construction contract by reason of a party’s insolvency will therefore depend on the contractual provisions.

Tips for using the tools:

  • Read your contract and be clear on what can and cannot be done under the contract. It is the most obvious and common tip, but in an insolvency situation parties can react on instinct and forget what the contractual provisions allow.
  • Exercise caution when withholding payment from a payee downstream by reason of non-payment from an upstream third party payer. Only if the upstream third party payer is insolvent, and the contractual provisions allow, may you consider withholding payment from the downstream payee.
  • Do not work for free! If as a payee, you have not received payment for sums due, consider suspending the works to avoid racking up further potentially irrecoverable costs.

Shona McCusker is a solicitor at MacRoberts

Blog: Scotland’s churches are part of our national treasure, but valuation presents a professional challenge

Adam Jennings

Chartered surveyor Adam Jennings on the intricacies of valuing churches.

Scotland’s churches are part of a long and proud heritage. They stand tall at the heart of every community, crafted from native stone and embellished with often stunningly beautiful architectural complexity.

However, times change, and buildings which were designed to accommodate congregations of hundreds, or even thousands, now struggle to attract and retain dwindling bands of regular worshippers.

This poses a dilemma for church authorities which, increasingly over recent years, have been forced into disposal programmes to rationalise the estate and to raise funding to maintain and restore remaining church buildings.

It also creates a serious challenge for surveyors who are tasked with valuation of buildings with a vast range of differing characteristics, often in the absence of discernible trends or comparable sales evidence.

The sale of church buildings is not new. Declining attendance has been at the heart of ecclesiastical concerns for many decades, but there is little doubt that the pace of disposals is accelerating.

But disposal has to be seen in the context of the historic scale of the church estate in Scotland, which runs into thousands of buildings.

New church provision ran at a frantic pace through the 17th, 18th and 19th centuries. After the Great Disruption of 1843, the Free Church of Scotland alone built more than 700 new places of worship by 1847. The established church added more than 500 parishes between 1843 and 1909. Competition, naturally, led to oversupply.

That is the legacy now being dealt with. As attendances diminish, congregations in close proximity to each other may decide to amalgamate and sell off one of their churches to raise capital for the maintenance and repair of the remaining one.

Though our commercial department has compiled its own substantial body of evidence in this specialised arena, the remarkable range of buildings, disparity of styles and vagaries of location make like-for-like comparison uniquely difficult.

But while church buildings have their own issues – traditionally built from sandstone, pitched slate roofs, often listed – there are buyers out there. There is a growing trend of purchase by other faith groups who may see the option of an existing church as a cheaper alternative than building their own place of worship from scratch.

And many churches fall into the Class 10 category in the Town and Country Planning (Use Classes) (Scotland) Order 1997, meaning that they are in the same use category as children’s nurseries, créches, libraries, meeting halls, exhibition halls and some education facilities.

Some obsolete churches have also been acquired by community groups which have secured funding and are attracted by good sized floorplates together with a suitable range of support accommodation.

In general terms, the more marketable church buildings tend to be located in urban areas, often benefitting from adequate parking provision and distinctive architectural features.  Should the above criteria be met in affluent areas, developers can justify the cost of conversion to, for instance, flatted dwellings, subject to planning.

One such example would be the recent disposal of former traditional, Grade ‘B’ listed church premises on Great George Street in Glasgow’s West End, with DM Hall acting on behalf of London and Scottish Investments.

Interest levels were considerable, resulting in a closing date for offers.  The successful buyer is presently creating 21 flatted dwellings within the original church building, with a further three new build units to be constructed on site.

The economics of conversion, however, may not add up in lower value areas – even if the church was similar – because the end values on completion would be significantly less attractive.

Church buildings occupying rural locations, with a lack of services, those surrounded by graveyard grounds or in a state of disrepair are often subjected to protracted marketing campaigns.  Indeed, in a number of circumstances, some such properties are ultimately disposed of via the auction route.

So, while the number of properties coming to market is only likely to increase, it will become no easier to paint a picture of the market in general and surveyors will essentially have to continue to provide a bespoke valuation process in this specialised area.

  • Adam Jennings is a surveyor in the Glasgow North office of DM Hall Chartered Surveyors.

Blog: Remember the Third Party Right of Appeal? Well its back in a different guise

Keith Geddes

Keith Geddes discusses the Planning Bill and the potential for the community right to appeal being introduced and slowing up house building in Scotland even further.

Now known as an Equal – or Community – Right of Appeal, supporters are now campaigning for its inclusion in the Planning Bill, now at Stage 1 in the Scottish Parliament. Amendments in support of equalisation will be tabled, as the Bill makes its way through Parliament.

And campaigners are not short of political support. Monica Lennon, Scottish Labour’s new planning spokesperson, has said that: “The planning system needs rebalanced: the Scottish government is wrong to dismiss equal rights for communities”. Both the Green Party and the Liberal Democrats also support the “equalisation” agenda while Conservative MSP’s have expressed similar views. For example Alison Harris MSP argued: “Where is the fairness in applicants’ being able to appeal against a local authority’s refusal to grant planning consent when the same right is not given to objectors when planning consent is granted?

And SNP MSP, Gil Paterson asked: “We are all aware that, when it comes to developments, the developer has much more power than the community…. Does the minister envisage that, following the consultation the balance of power might change somewhat?”

Those who support the Equal Right of Appeal, also have media support. The Sunday Herald editorial (10/9/17) argued: “Crucially, communities should be given equal rights of appeal, so that they have the same recourse as property developers. The system needs to be fairer – so let’s level the playing field.”

What does the Community Right of Appeal mean for housebuilders in Scotland? It would potentially:

  • Extend the development process even further
  • Make many small developments unviable and increase the cost of new homes to first time buyers
  • Require more planning officers at a time when planning staff are being reduced
  • Push developers to invest in building homes outside Scotland, where a Community Right of Appeal was not in place, and
  • Delay further the building of much-needed new homes – 10 years after the crash Scotland is still not building enough homes.

The practical mechanics of triggering an appeal are not clear. Who would be able to appeal? Anyone whom objected? A local community council or community group? People who live within a certain distance of the proposed development?

And perhaps of greater importance, who would stand up for those families looking for a suitable home? How would their voice be heard?

And equality does not apparently apply to investment by communities and developers. Developers will typically commit many thousands of pounds on a variety of technical reports, before their application even comes before committee.

The Scottish Government’s view is that a Community Right of Appeal is unnecessary.  Their Places, People and Planning Position Statement argues: “We are convinced that stronger, early engagement …..would be much more constructive. We will build on the existing strong provisions to involve people early in the planning process rather than at the end, and ensure that our system works for all, including those who want to invest in the quality of our places and our economy.”

Consultation on the Bill closes on February 2. If your organisation or company has not yet responded to the Scottish Parliament’s Local Government and Communities Committee call for evidence, now is the time to do so.

  • Keith is a past president of CoSLA and former leader of the City of Edinburgh Council. He has also served on a number of public bodies, including Scottish Enterprise, the Accounts Commission, Scottish Natural Heritage and the Scottish Arts Council, and is chair of the Central Scotland Green Network Trust. He has extensive experience in local government, planning, housing and education.

Blog: Gentle undulations, rather than peaks and troughs. Just the property market we’d wish for

Eric Curran

Eric Curran talks about how the Scottish property market is shaping up in 2018.

As we look back over the residential property market in Scotland in 2017, it is encouraging to note that the optimism expressed at this time last year has, by and large, been justified.

Lack of supply, with the exception of Aberdeen, has once again been the principal, indeed overriding, theme and the same market distortion looks set to dominate as we enter the first few weeks of 2018.

Aberdeen, of course, is a market unto itself, as London is in England. If there was one disappointment in the Granite City in the past year, it must be its huge missed opportunity to realign itself away from its dependence on oil and invite other industries to the dynamic north.

No doubt Aberdonians will argue that that is exactly what they have been trying to do but the local economy is still far too heavily dependent on what happens in the grey waters of the North Sea.

Aberdeen aside, the market in Scotland has performed admirably, with acceptable, sustained growth over the longer term and an absence of disruptive peaks and troughs – exactly the conditions property professionals fondly wished for in the bleak years of the recession.

As last year, so in 2018 there have to be concerns about the new build sector, which is growing fat on a diet of government incentives which it receives to the exclusion of all other property types.

It is legitimate to ask if Help to Buy schemes simply push up prices across the board while funnelling funds into one, effectively subsidised, sector. If the aim is to help first time buyers, why is that help confined to 5% to 10% of the market?

Another trend which bears scrutiny is the rising appetite for the private rented sector (PRS), which is now offering serious competition to more traditional social housing models. Cui bono is a reasonable response.

There is no doubt that some PRS schemes on the drawing boards are of high quality and aimed at sustainable community building. But do such schemes simply lock Generation Rent – those unfortunate 20- to 34-year-olds – out of home ownership for even longer?

The Scottish Government has to be given credit for trying to do something different to address the housing shortage, such as providing incentives and rental guarantees for Build-to-Rent projects.

But the best laid plans gang aft agley, as with the Land and Buildings Transaction Tax. Its zero rate on homes under £145,000 was intended to encourage lower earners into the market, but is has been seized on by investors who are delighted to construct portfolios with no transaction implications.

So, there have been artificial effects on the market and these are likely to continue, but there has been a reasonable level of performance and we have continued to see modest price increases.

The Brexit factor is waning. This is not because the consequent uncertainty has diminished. It is simply that people become used to anything and there is a palpable wish simply to get on with our lives while the geopolitical battles rage on in the distance.

Rather than hanging on for a suitable property to buy before selling, some individuals are biting the bullet, selling advantageously and renting while they wait for something else to come along. Whether this is a profitable strategy can only depend on individual circumstances.

Brexit fluctuations will continue in 2018, but the uncertainty of a second Scottish referendum is largely now old news and there is a sense that, despite the continuing clamour in Holyrood, it is extremely unlikely to happen in the foreseeable future.

Perversely, just as the market is stabilising in the way most property professionals have wanted, risk is being reintroduced by, of all people, the lenders.

In their continued drive for economies and speed, they are actively developing automated valuation models designed to create valuations using mathematical modelling combined with a database.

These calculations will be based on specific points in time and analysis of comparable values. But, in taking out the human element, they are also removing professional eyes on the property, opinion based on experience and deliberation and analysis.

This is a short-sighted strategy which has the potential to seriously disrupt the integrity of valuation and possibly even create another lending bubble – which could burst again at any time.

Does anyone seriously think that is a good idea?

  • Eric Curran is managing partner of DM Hall Chartered Surveyors, based in the firm’s Glasgow North office