Scottish Property Federation

Budget: £4 billion allocated for Scottish infrastructure

Derek Mackay

An allocation of over £4 billion of funding for infrastructure which includes a £756 million contribution to the Scottish Government’s target of delivering 50,000 affordable homes by 2021 were amongst a range of investment plans set out in the 2018-19 Draft Budget by finance secretary Derek Mackay.

The infrastructure investment, which is in line with the Programme for Government commitment to invest £20bn over the life of this parliament, also includes beginning the procurement of Scotland’s £600m universal superfast broadband programme to be delivered over the next four years; investing £60m in Low Carbon Innovation Fund to deliver innovative low carbon energy infrastructure solutions including for electric vehicles and investing £1.2bn in transport infrastructure, including key road projects and further electrification of the rail network.

Publishing the Draft Budget to parliament yesterday, Mr Mackay set out a programme that will also:

  • Deliver the first £70m of a new £150m Building Scotland Fund to unlock new house building, develop new low carbon commercial property and support research and development
  • Set aside £340m for initial capitalisation of the Scottish National Investment Bank
  • Drive regional economic growth by more than doubling investment in city region deals.
  • Deliver £18m as part of a £65m package of investment for the National Manufacturing Institute to make Scotland a global leader in advanced manufacturing

Responding to the announcement, David Melhuish, director of the Scottish Property Federation, said: “We welcome the creation of the Building Scotland Fund to support innovation in both housing and commercial property development as well as the capitalisation of the Scottish National Investment Bank.  Access to finance remains challenging in a severely risk-averse environment for developers looking to innovate with real estate projects and with the economy set for subdued growth in the next few years, the real estate sector can act as a positive driver of growth that will support jobs and investment in places to work, live and relax.

“The decision to use CPI as the measure of inflation rather than RPI is welcome but we believe that Scottish Ministers should not become tied to increasing business rates by this measure annually as was once the case with the RPI measure.  The economy is growing but only just and we feel that the freedom to increase rates by less than CPI should be considered in future budgets if the economy continues to struggle.

“New commercial development, or redevelopment has the potential to increase and to boost the economy and enhance the tax base.  The confirmation of the support for new build is welcome though we remain concerned that the potential restriction of listed building rate relief will deter the regeneration of listed buildings for business purposes.  This could have significant implications for struggling town centres and clear guidance to local authorities on restricting rate relief will be important.”

The country’s home builders said the Budget recognises economic importance of housing investment.

Chief executive of industry body Homes for Scotland, Nicola Barclay, said: “With home building in Scotland supporting over 60,000 jobs and contributing billions each year to the economy, we are pleased to see the Scottish Government confirming its ambition for the housing of all types our country needs.

“As well as a significant funding increase for affordable housing, the additional funding for skills bodies, colleges and universities that will help to plug the skills gap, is also welcome.

“The Land and Buildings Transaction Tax relief for First Time Buyers up to the first £175,000 of the purchase price could be a valuable boost for those aspiring to get on the property ladder, representing additional money towards their deposit or moving costs. However, given that this is not due to become effective until 2018/19, we are concerned that any delay may have a potential impact on purchasing decisions in the short term.

“Of particular note, however, is the establishment of the new £150m Building Scotland Fund which will have a prominent housing and infrastructure focus to support interventions that will further accelerate and scale up housing delivery. With the funding and delivery of infrastructure a major housing blocker, we keenly await further details in the new year.”

The Scottish Budget also followed Chancellor Phillip Hammond’s lead with a tax break for first-time buyers.

Under the plans, first-time buyers will be given a helping hand with a new land and business transaction tax (LBTT) relief for properties worth up to £175,000. As many as 80% of first-time buyers will now be exempt from paying any of the tax when buying a new home.

The move comes after Chancellor Philip Hammond exempted first time buyers from stamp duty – the equivalent tax in England – for homes up to the value of £300,000. Scottish ministers say lower house prices in Scotland means £175,000 is a roughly comparable figure north of the Border. Mr Mackay said the move will “make home ownership a reality for more of our young people.”

But the move does not go far enough according industry body the Royal Institute of Chartered Surveyors in Scotland (RICS Scotland).

Hew Edgar, RICS policy manager for Scotland, said: “Whilst this change has the potential to stimulate activity in the short term, it comes at a time when the market is subdued, and does not tackle the overarching problem of housing shortage supply across all tenures. This government must realise that prioritising demand side measures is not conducive to market fluidity and will do little to solve the chronic shortage of suitable accommodation across Scotland’s housing options.”

He added: “Once again, we call on Scottish Government to review the current LBTT as a priority going forward as this current framework is not only limiting market activity, but could ultimately bring the market to a standstill. That said, we hope that the ‘Building Scotland’ fund will provide the required support for alternative models of housing delivery.

“On a more positive note, the £600m investment in providing superfast broadband – ensuring the last 5% of Scotland’s ‘non-spot’ dwellings – will be connected to the fourth utility by 2021, will be greatly received.

“As part of £4bn investment in this budget – £1.2bn of which will be directed towards transport – tackling the infrastructure deficit is always welcome. But Mackay held back and gave little away as to where the funding will be directed. He also missed an opportunity to attract and retain top talent to Scotland by not building on Scotland’s infrastructure success of the Queensferry Crossing, with no addition of noteworthy projects to the infrastructure pipeline.”

Innes Smith, chief executive at Springfield Properties, said the announcement was “a positive step forward” for the housebuilding industry in Scotland and for people who need homes.

He added: “With its progressive outlook, the Scottish Government remains determined to improve the housing situation across Scotland. A greater proportion of first-time buyers will be exempt from paying LBTT, making buying a first home more attainable. We are pleased to see the ongoing commitment to funding affordable housing and the large investments in infrastructure and superfast broadband which support the development of new housing.

“We are confident today’s news on LBTT, the Scottish Government’s £756m commitment to affordable housing and funding for further action on homelessness represents real action for those in need.”

Claire Mack, chief executive of Scottish Renewables, said: “The Scottish Government’s continued commitment to renewable energy is of course to be welcomed, particularly as its final Energy Strategy will be published within days.

“It is encouraging that the Government recognises renewable energy as a key driver of Scotland’s economy.

“Of note are the funds allocated to support both low-carbon innovation and the decarbonisation of the heat sector – a task which is of critical importance if we are to tackle climate change.

“We also welcome the reaffirmation of the Government’s intention to follow the suggestions contained in the Barclay Review of business rates and to link increases to the Consumer Prices Index, both of which will benefit new and existing green energy generators. We are pleased that Scottish Renewables’ recommendations on these points have been heeded.

“We will continue to work to understand the full implications of the detail contained in the Budget document for our members and look forward to working with the Scottish Government as the measures outlined in the Budget and upcoming Energy Strategy are implemented.”

Property industry calls for Budget to set platform for growth

David Melhuish

David Melhuish

In advance of this week’s Scottish Budget the Scottish Property Federation (SPF) has pressed finance secretary Derek Mackay on a number of key points designed to help Scotland’s real estate industry support the Scottish economy to grow and thrive.

Given that the government and wider public sector have limited resources over the next few years, the real estate sector body has urged Derek Mackay to create the right conditions to allow private sector investment to come forward to support the economy.

These proposals include:

  1. Further reform of business rates following on from the outcome of the Barclay Review, including a rethink of proposals to remove listed building relief.  This will go some way to supporting the regeneration of town centres, making regeneration projects that include high proportions of older office and housing stock more financially viable.
  2. Ensuring that any business rate bill increases by a maximum of CPI in any given year to support hard-pressed businesses across Scotland, but also to ensure a level playing field with England, which introduced a similar policy during the Chancellor’s recent Budget.
  3. Raising the 10% rate of the Land and Buildings Transaction Tax (LBTT) to a new £500,000 threshold for residential property (as opposed to £325,000), which will address a fall of residential supply to the markets at this level.
  4. A commitment that the proceeds of increases in planning fees for developers will result in increased resources for planning departments across Scotland and that performance must improve ahead of further fees increases.

David Melhuish, director of the Scottish Property Federation, said: “We fully appreciate that this is a Budget where Derek Mackay has very little room for manoeuvre and that’s why we’ve suggested a number of financial tweaks which, whilst not representing a huge swing in policy direction, will have a profoundly positive impact for Scotland’s real estate sector – a key driver in the economy.

“Our members have raised concerns about the implementation of some of the proposals in the Barclay Review, particularly around the removal of listed building relief and we have asked the Cabinet Secretary to think again in this area. Likewise we feel that any annual increase to business rates should be capped at the level of CPI – failure to do so will see Scotland at a competitive disadvantage to our neighbours south of the border.

“We already have data which shows significant drops in sales of residential property valued over £400k and highlights that would-be purchasers are being spooked by high LBTT costs.  The market is sending out a warning signal on LBTT and the Scottish Government would do well to consider amending the threshold in order to support the market and encourage more transactions, and more revenue, over the next year.

“In the week following the publication of the Scottish Government’s Planning Bill we are also asking the Finance Secretary to look again at how resources are deployed to Scotland’s hard pressed planning departments. Since the six-fold increase in planning fees levied upon developers, we are disappointed that local government has yet to make any public commitment to reinvest those increased fees into the planning service, which the higher fees are intended to support.”

Operational delivery ‘key to return on investment’ for Build to Rent in Scotland

A build to rent project is underway at Edinburgh's Fountainbridge

A build to rent project is underway at Edinburgh’s Fountainbridge

Investors into Scotland’s Build to Rent (BTR) sector have been urged to ensure that schemes have operational management factored in from the earliest stages of development.

A new report from residential property management company FirstPort is based on a roundtable meeting involving some of Scotland’s major players in industry and representatives of government.

With significant government backing, the hope is that BTR will attract £500 million of investment and deliver 2,500 private rental homes by 2020 to help address the housing shortage in Scotland.

But, according to Build to Rent in Scotland: Getting it right, across the UK the BTR sector has so far faced challenges establishing itself as a significant element of the housing market.

FirstPort business development manager, Jeremy Ogborne, said: “Build to Rent in Scotland: Getting it right addresses some of the barriers that have slowed investment and delivery in the BTR sector.  The report argues that securing the confidence of investors, of government, and of customers, is key, and that ensuring how the building will operate and serve its local market should be planned in from the beginning.

“The key message is that, in the end, the quality of operational delivery will define a development and the customer experience. In the everyday life of a development it is going to make the difference between efficient and high-quality amenities versus amenities which are disused or deteriorating; the difference between a vibrant community in which residents feel they belong, versus one with dissatisfied, disengaged customers.

“Operational delivery is absolutely key to providing a healthy return on investment for the long-term, reducing customer churn, and maintaining a premium look and feel.

“If a development treats this as an afterthought then it is going to struggle to remain viable, as some BTR developments currently are. There are very few managing agents in the market with the scale necessary to perform this role.

“Now the Scottish Government is calling on the sector to deliver, and with operational expertise, management information and an experienced, skilled workforce all factored in from day one, it can do so.”

Build to Rent in Scotland: Getting it right includes input from Homes for Scotland, Pinsent Masons LLP, the Scottish Futures Trust, the Scottish Property Federation, Montagu Evans, the EDI Group and representatives of the Scottish Government.

Planning Bill published by Scottish Government

planning stockA Bill for an Act of the Scottish Parliament to make provision about how land is developed and used has been introduced by cabinet secretary for communities, social security and equalities, Angela Constance MSP.

The eagerly awaited Planning (Scotland) Bill follows a wide-ranging consultation earlier this year on proposals which aimed to transform the planning system and builds on recommendations of an independent review carried out by a panel of experts last year.

Ministers have insisted the Bill will “improve the system of development planning, give people a greater say in the future of their places and support delivery of planned development”.

Provisions within the Bill include Simplified Planning Zones and proposals to develop an Infrastructure Levy to help support the development of infrastructure to unlock land for development. It also includes a new right for residents to produce their own development plans.

The Bill will strengthen the status of the National Planning Framework, bringing Scottish planning policy within the statutory development plan. It will also remove the requirement to produce strategic development plans and changes the process of producing a local development plan so there is “greater emphasis” on delivering developments.

It will give planning authorities more powers to take enforcement action against unauthorised development. It will also require planning authority staff to undertake training.

An infrastructure levy will be introduced in the bill that will be payable to local authorities and linked to development. This can be used to help pay for infrastructure projects that could incentivise new development.

The Bill’s aims include:

  • Focusing planning, and planners, on delivering the development that communities need “rather than focus on continuous writing of plans that lack a clear route to delivery”
  • Empowering people and communities to get more involved and to have a “real influence” over future development
  • Strengthening the strategic role of planning in co-ordinating and supporting the delivery of infrastructure needed to support development, including “much-needed” housing
  • Reducing complexity, while “improving accountability and trust” in planning processes and decision-making.

In a ministerial statement to the Scottish Parliament yesterday, local government minister Kevin Stewart described how the Bill will create a new structure for a more proactive and enabling system with clearer development plans, earlier engagement with communities, streamlined procedures and smarter resourcing.

Mr Stewart said: “Scotland’s economy needs a world-class planning system. Our planning system must take a strong and confident lead in securing the development of great places that will stand the test of time and this Bill will encourage more people to play an active role in shaping these.

“In addition to restructuring and simplifying the system to provide greater certainty for investors and communities alike it will reflect the importance of development and infrastructure to achieve our ambitions for housing, schools and regeneration – creating jobs and generating economic growth.

“Performance improvement will be formalised so applicants can rely on receiving a consistent service and local authorities will have greater powers to charge for their services. In short, this Bill will reduce bureaucracy so that planners are better equipped to lead high-quality developments that support the economy and enhance our communities.”

Responses

Scottish Alliance for People and Places

Rt Hon. Henry McLeish

Rt Hon. Henry McLeish

The Scottish Alliance for People and Places welcomed progress in the Bill and commended the minister’s approach to engagement, but has said the Bill could be more ambitious if it is to achieve the type of transformational culture change that the Scottish Government and the wider sector wants to see.

The Alliance is a collection of organisations working across the place-making and planning sector. Unique in Scotland, the group formed in recognition of the opportunity to build a more inclusive, respected, efficient and ambitious system of planning that puts people at the heart of their places.

The Alliance’s goal is to ensure forthcoming changes to the planning system in Scotland meet the ambitions of communities, the built environment profession and the Scottish economy by working with government, parliament and local communities to articulate a compelling argument for change and develop constructive ideas for how to realise that change.

Speaking following the publication of the Bill, chair of the Scottish Alliance of People and Places, and former First Minister of Scotland, Henry McLeish, said: “We welcome the progress that has been made in the publication of the Planning (Scotland) Bill, and we recognise the significant consultation process that has been undertaken to get us to this point. ​Furthermore, the serious and detailed engagement of the Minister is an exemplar of good governance and we welcome it wholly.

“However, it is our view that there space to build on the Bill’s ambition and this is will be important if we are to achieve our collective goal of a transformational culture change in the planning system.

“In some communities in Scotland, planning is viewed as an imposition – something done to us by big developers in partnership with local government. It’s about our neighbour’s extension. It’s about stopping the development we don’t like, rather than working together to plan the positive developments we want to see – local parks, schools, hospitals, and, crucially, housing. In many other communities, especially in deprived areas, some people may not even know the planning system exists, let alone how to get involved.”

​“We want to see a move to a much more inclusive, holistic and innovative system of planning, where there is systematic and robust engagement with local communities and all stakeholders from the outset and throughout the entire process. This requires a transformational culture change which involves articulating a compelling and positive vision for planning, rather than simply making technical changes.

​“We look forward to working the Scottish Government and Scottish Parliament over the coming months to present constructive and innovative ideas for how we think this can be achieved through the Bill.”

Stefano Smith

Stefano Smith

RTPI Scotland

The professional body for town planners has called for a bold approach when considering the new planning bill for Scotland.

Stefano Smith, convenor of Royal Town Planning Institute Scotland (RTPI Scotland), said: “We said at the outset of the planning review that it was a fantastic opportunity to realise the potential of the planning system and to highlight the important role planning had in creating the types of places we want across Scotland.  Any new planning act must aim to fulfil those initial aspirations of a planning system that delivers infrastructure to enable development and achieve sustainable economic growth.

“The Bill, as introduced, has the right direction of travel and will fix some of the issues faced in planning our cities, towns and villages. However, we question if it is bold enough to make the step change required for a world leading planning system.”

RTPI Scotland believes that there is still an opportunity to do this through ensuring the bill promotes:

  • a new ambitious approach to engaging communities where discussion and debate takes place at the start of the process and is based on what people want their area to be rather than on what they don’t want
  • a more coordinated approach to planning, development and infrastructure through making the National Planning Framework more influential, establishing new statutory Regional Planning Partnerships and taking new approaches to funding infrastructure
  • a planning system that delivers development through capital funding from local authorities and other community planning partners
  • a properly resourced and influential planning service that promotes good place making through establishing a statutory Chief Planning Officer in every local authority
Petra Biberbach

Petra Biberbach

Planning Aid for Scotland

PAS has called on the Scottish Government to be bolder and more ambitious in its Planning Bill in order to realise a more positive, collaborative planning system which carries the trust of local communities and empowers them to actively engage in the decisions about their local places.

PAS is Scotland’s leading place and built environment charity. Its work includes everything from a free planning advice and mentoring service, to tailored training and public engagement events catering for members of the public, planning professionals, local authorities, public bodies, elected members, community groups, young people, volunteers, and for those simply interested in how planning is shaping their environment.

PAS chief executive, Petra Biberbach, sat on the Independent Panel which was set up in September 2015 by Scottish Ministers to review the planning system. The Panel reported its findings in 2016.

Ms Biberbach said: “PAS wants to see a planning system that is much more positive and inclusive. This involves working with local communities, planners and other stakeholders at the very beginning of the planning process in order to encourage a more collaborative approach based on meaningful dialogue and trust.

“This Bill is a real opportunity to bring about a real and meaningful change in the way we engage people in the decisions about their places, and we think the Scottish Government needs to be bolder and more ambitious in its approach. Whilst there is a lot in the Bill around engaging communities earlier in the process that we welcome, there needs to be more detail on how this will achieved and what processes will be in place to ensure that it happens in meaningful way.

“Once we have had the time to fully consider the legislation, we will continue to work with the Scottish Government and Scottish Parliament to outline our ideas on how we think this can be achieved through the legislative process, but we do not think the Bill goes far enough in its present form. We want to see an ambitious planning system fit for a thriving Scotland.”

Hew Edgar

Hew Edgar

RICS Scotland

Hew Edgar, RICS Scotland policy manager, said the Planning Bill “needs to be more ambitious”.

He said: “While the Scottish Government’s approach should be applauded, via the establishment an independent Review of planning and sector-wide engagement, this process has lasted for more than two years. As such, RICS, like most of the sector, had hoped for a more innovative and ground-breaking set of provisions that would provide the necessary changes to cement Scotland’s planning system in the ‘world class’ category.

“There are undoubtedly positive and welcome changes within the Bill that can fix some of the more technical barriers; but overall the Bill needs to be more ambitious. Only then will it make the required changes that will enable the system to be less reactionary, and create a framework that can maximise output in the form of infrastructure, housing, and place-making.

“RICS is a member of the Scottish Alliance for People and Places, and will work the Alliance, Scottish Government and Scottish Parliament to explore constructive ideas that make the whole-sale changes that are required.”

Scottish Property Federation

Andrew Sutherland

Andrew Sutherland

Andrew Sutherland, chairman of the Scottish Property Federation and Joint MD of Miller Developments, said: “The proposals in the Bill deserve a cautious welcome from the Scottish real estate sector. Altogether they hold some promising suggestions to move from a regulatory system to a positive and active enabler of good quality development, with appropriate early engagement and focus on growing the economy to secure new investment and development.  If we are to drive local economic growth, jobs and investment we must have strong public leadership and an efficient, aspirational and delivery-focused planning service.

“However, we continue to hold major reservations over the prospect of a Scottish Infrastructure Levy and further discretionary fees when we are yet to see a step change in performance.

“We look forward to seeing these concerns addressed further if the Bill is fully to realise its potential to unlock development and deliver the much-needed infrastructure for our growing population and business needs.”

Addleshaw Goddard

Sarah Baillie

Sarah Baillie

Sarah Baillie, planning partner at international law firm, Addleshaw Goddard, said: “We are pleased to see the continued commitment to improving the planning system and the introduction of Planning Bill into the Scottish Parliament today. Scotland’s economy needs a flexible, positive and effective planning system, and whilst much work has been undertaken since 2015, we expect that significant questions will be raised during the progress of the Bill. Much information is also still required on the specifics of implementation of new legal and policy mechanisms, even if the Bill does go through.

“The challenge of delivering both more, and good quality housing, and the approach to infrastructure provision is far from resolved – it can’t be left to just the planning system to resolve. Also, if there really is to be a step change from that of a regulator, to a positive and active enabler of good quality development and a shift from reacting to proactively supporting investment and development proposals, then there needs to be a significant cultural change and the Bill alone won’t provide that.

“Local planning authorities need to be adequately resourced in both financial and human terms, and, having graduated with a planning degree, it stems from the grassroots up starting with Scottish universities creating courses that attracts students to continued and adequate professional development and support for the planning profession, to ring-fencing planning application fees for the planning department.

“A Bill committee will now be formed to take evidence and make recommendations and this will provide a real opportunity to participate in the Bill’s legislative scrutiny. We would actively encourage the property industry, planners and other key stakeholders to fully engage, share their innovative ideas, views and opinions with any calls for evidence by the Scottish Parliament.”

Business leaders call for new rates cap in Scottish Budget to support investment

David Melhuish

David Melhuish

Four of Scotland’s leading industry groups – representing manufacturing, commercial property, retail and tourism – have united to challenge the Scottish Government to ensure future increases in business rates rise by no more than CPI, rather than the RPI measure of inflation. A switch from RPI to CPI indexation was endorsed by the recent Barclay Rates Review and – following last week’s UK Budget – is also being introduced for ratepayers in England from next Spring.

Scotland has historically maintained a level playing field with England on the headline business rate poundage. Therefore keeping future rises in Scottish business rates aligned with RPI rather than CPI would put Scottish businesses at a competitive disadvantage compared to firms operating down south, by approximately £25-30 million next year.

Scottish firms operating from medium sized and larger premises already pay more than they would in similar premises in England to the tune of £62 million each year, due to last year’s doubling of the Large Business Rates Supplement.

The four business groups – Scottish EngineeringScottish Property FederationScottish Retail Consortium and the Scottish Tourism Alliance – have combined to speak up in advance of the Scottish Government’s Budget which is expected on 14 December.

David Lonsdale, director of the Scottish Retail Consortium, said: “With shop vacancies increasing and one in every ten retail premises now empty, there is a pressing need to keep down the cost of doing business. Scottish Ministers have said they want to pursue the most competitive business rates regime in the UK, and implementing Barclay’s recommendations on tying uplifts in business rates to CPI rather than RPI would help towards achieving that goal of competitiveness. Such a move would make retailers more confident about investing in new or refurbished shop premises to the benefit of customers and our town centres.”

David Melhuish, director of the Scottish Property Federation, said: “The Scottish Budget offers the government an opportunity to set a sustainable path to supporting business and taking forward the Barclay Review of business rates. With Scottish economic growth sluggish any uplift in the poundage rate must be measured. Even if a 2% rise were to be applied this coming year the fact is ratepayers in medium and larger sized premises would be paying more than 50p in every pound of rateable value applied to their property, and yet we are only in the second year of the current five-year revaluation period. By limiting any poundage increase, the government can begin to bring the overall business rate for large Scottish ratepayers back into line with England, as recommended by Barclay, and at the same time also support smaller Scottish ratepayers.”

Bryan Buchan, chief executive of Scottish Engineering, added: “Given current concerns over forecasted low economic growth and our relatively poor performance in terms of productivity, the government should be doing all it can to stimulate business. Adoption of CPI as the basis of business rates increase calculations would be of assistance and a helpful step forward to achieving a refreshed rates system that offers a real stimulus to new and growing businesses.”

Marc Crothall, chief executive of the Scottish Tourism Alliance, said: “The Scottish Tourism Alliance fully supports calls for increases in the business rates poundage in Scotland to be linked to the CPI from April, following the Chancellor’s announcement last week that firms south of the border will benefit from the lower level of calculation.

“We acknowledge the Scottish Government’s pledge to continue the capping of rateable increases for many tourism firms, however there is still widespread serious concern within the industry around the future cost of business rates despite the short term comfort of the interim cap afforded to some. Indeed business rates remained the number one issue of concern in the STA’s recent research into future confidence within the industry. It is vital that Scotland offers a business environment which is as competitive if not more so than what our industry counterparts enjoy south of the border.”

Commercial property sales now in third quarter of decline

A new canal side housing and commercial development planned for the Fountainbridge area of Edinburgh

A new canal side housing and commercial development planned for the Fountainbridge area of Edinburgh

The total value of commercial property transactions in Scotland fell for the third quarter in a row this year, according to analysis conducted by the Scottish Property Federation (SPF).

The latest commercial property sales figures for Q3 (July – September) 2017, which were released by the Registers of Scotland, show that there was just £693 million worth of sales in Scotland during the quarter, down 12% on Q2 2017.

The number of sales also dipped between Q2 2017 and Q3 2017 with 1,089 commercial property sales in Scotland, down 8% (101 sales).

Furthermore, Q3 2017 saw a big drop in the number of £5m+ commercial properties sold in Scotland, with transactions at this level of the market at their lowest since Q2 2014. There were 22 commercial properties sold at the £5m+ level, securing a total value £332m. This figure is significantly down on the previous quarter (Q2 2017), which saw 32 sales with a combined total of £385m.

David Melhuish, director of the SPF, said: “We have not seen three consecutive quarters of negative growth in commercial real estate sales since 2012 and I think that it is a reminder of just how fragile our market is currently. While investment transactions appear to be slightly stronger than in the same quarter last year, the overall market remains subdued.

“We also need to get more commercial property of the right type and quality into our market and this is where the development process must be efficient and effective.

“With Edinburgh and Glasgow among key locations experiencing high levels of business occupancy we must deliver new commercial property to meet demand.”

Despite the declining figures, property information provider, Costar UK, reported a slight improvement in investment volumes. £416m was invested across all commercial property sectors in Q3 2017, bringing the investment total for the first three quarters of 2017 to £1.57 billion.

The full report can be found here.

Miller Developments MD appointed new Scottish Property Federation chairman

Andrew Sutherland

Andrew Sutherland

The Scottish Property Federation (SPF) has announced joint managing director of Miller Developments, Andrew Sutherland, as its new chairman.

Succeeding current chairman, Paul Curran, who is director of Edinburgh-based Quartermile Developments, Andrew’s new role will commence at the SPF’s Annual Dinner at the Edinburgh International Conference Centre tonight.

Andrew, who will now spearhead the organisation in Scotland, will use his new role to campaign for the best possible regulatory and competitive platform for the real estate sector in Scotland to attract jobs and investment to the country’s built environment. In particular, Andrew will ensure that governments at all levels realise the benefits of boosting commercial property development activity north of the border.

Other elements of Andrew’s 2018 priorities include supporting governments to position Scotland as a competitive location to potential investors and managing ways to reduce the time required to complete developments through engagement with the Scottish Government on its new Planning Bill expected to be introduced to Holyrood shortly.

David Melhuish, director of the SPF, said: “We are delighted Andrew Sutherland is taking up the role of Chairman of the SPF. Paul Curran has had a fantastic year, and Andrew picks up the role at a time of gathering engagement across Holyrood and Whitehall for SPF. His knowledge of planning and development matters working across the UK will be a huge benefit as we tackle the next Scottish Planning Bill.

“We now look forward to working with Andrew over the next year, continuing to strengthen our links with government and producing substantive industry evidence for our members, their investors and government alike, to ensure our own growth strategy benefits the property industry here in Scotland.”

Andrew Sutherland said: “I am extremely pleased to be taking on the role as chairman of the SPF. I want to continue contributing and working hard to represent the interests of Scotland’s commercial and residential markets to attract investors, speed up development times and improve our overall planning strategies.

“Time is one of our biggest issues and I want to see quicker responses for developers looking towards Scotland with an eye on investment.  I’ve been particularly active with planning matters across the UK and am therefore in a good position to compare and contrast planning services to hopefully improve the current situation.

“I’m now looking forward to working with David Melhuish and the rest of the SPF team over the next year, and making a positive change to the industry here in Scotland.”

Andrew hopes to see an increase in the industry contribution to the economy, supported by the campaigns he has been active in as a long-standing member of the SPF board and vice-chair.

These campaigns include: rates incentives for new build and new occupiers announced by finance secretary Derek Mackay, the proposals to improve the planning service, including the resourcing of the planning service and the implementation of the Barclay review of business rates.

Andrew has worked for Miller Developments for more than 30 years, honing his skills in real estate development, contract negotiation and commercial management.

After graduating from University of Edinburgh with a 1st Class honours degree in Civil Engineering, Andrew was responsible for all acquisitions, letting and financing aspects of the Paisley Shopping Centre before joining Miller Developments in 1992.

Throughout his career at Miller Developments he has held a number of directorships within joint venture companies including New Edinburgh Limited, working on the development of 2 1/4 million square feet of offices on the west side of Edinburgh, Edinburgh Park.

Some of Andrew’s other key achievements include responsibility for the following projects: Edinburgh Quay, a £60m regeneration project in joint venture with British Waterways, Omega, a £1 billion office park in Warrington, Arena Central, a £450m office, retail, residential and leisure development in Birmingham City Centre and City Road Basin, a £120m regeneration project in Islington, London.

Andrew is also a member of the Regeneration Committee of the British Property Federation.

Miller Mathieson, MD of CBRE Scotland, will replace Andrew in the role as vice-chairman of the SPF.

Builders warn of housing activity slowdown ‘unless LBTT band is extended’

construction stockScotland’s home building industry is warning ministers of a drop in future housing market activity unless the Land and Buildings Transaction Tax (LBTT) band is extended.

Homes for Scotland (HFS) repeated its call for the extension of the current 5% band in order to address the ‘considerable drop’ in activity at the higher end of the property ladder as new figures revealed Revenue Scotland collected £55 million less than expected in receipts from LBTT.

The trade body said the drop has occurred as buyers either can’t afford it or consider the ‘perceived punitive nature’ of the tax and choose to stay put.

Nicola Barclay, chief executive of HFS, said feedback from its members “shows that the present system (which varies considerably from that south of the border) is creating significant barriers”.

“As we have expressed in submissions to the Scottish Government and Scottish Parliament, if we are to have a healthy and well-functioning housing market, we need a tax framework that enables movement up and down all price levels,” she said.

“Whilst in volume terms this may currently impact only a relatively small number of customers, the concern must be that, if aspirational buyers are unable or indeed choose not to move, this will create blockages lower down and place more pressure on the price of the fewer homes that do come on the market.

“Not only will this distort the market, it will also ultimately exacerbate the housing crisis. Clearly, this is not good news for the three quarters of Scots who wish to own their own home and will also only serve to put further pressure on the social and private rented sectors.

“Crucially, however, as we see from today’s Revenue Scotland report, LBTT also has a massive impact on the Budget and public finances. If the Scottish Government acts to boost activity at the higher end of the market, we believe it would result in a greater tax take than is being achieved at present.”

Analysis of the figures by the Scottish Property Federation (SPF), show that Scottish Government’s residential property revenue returned to pre-LBTT levels last month though commercial property tax revenue was critically low.

Revenues rose in August by £5.2m on July, to £52.8m. This was a jump of £11.6m on the same month in 2016, making it one of the highest total monthly revenues generated from LBTT since the tax came into effect in April 2015.

Residential revenue rose to £28.5m with the second homes tax, the additional dwelling supplement, bringing in £12.1m.  If sustained, residential revenue for 2017 (not including the second homes tax) will surpass the £270m of residential revenue raised in the last year of SDLT for the first time since LBTT was introduced).

This improved revenue is a result of a recovery to pre-LBTT levels of sales of residential properties above £325,000, and a further rise in revenue from the Additional Dwellings Supplement ‘second homes’ tax.

LBTT revenue from commercial property sales rose for the first time in five months, standing at £12.5m.  However, 2017/18 remains a poor year for commercial LBTT (£65.4m) as the total value of LBTT still lags behind 2016/17 (£67.7m) and 2015/16 (£71m).

David Melhuish, director of the Scottish Property Federation, said: “The Scottish Government will be pleased to see that over the summer tax revenues from higher value residential sales have returned to pre-LBTT levels. When added to the windfall generated by the second homes tax (ADS), it is clear the government will expect to reach its 2017-18 LBTT revenue targets, even if weighed down by below-par commercial LBTT figures.

“However, crucially, leading agents are reporting a significant fall in higher value properties coming to market – reducing economic activity and adding pressure on house prices.

“We strongly believe that if the 10% residential threshold in Scotland is raised from £325,000 to £500,000 we would see more tax transactions, which could further boost to both government revenues and market activity.

“Whilst the residential figures are showing signs of improvement, the SPF remains concerned that Scotland’s commercial property market sector continues to show low levels of transactions, particularly for investments above £5m.  This is now affecting government revenues with commercial LBTT set to significantly under-shoot its forecasts for the second year running.”

A link to the SPF’s full report can be found here.

Property industry welcomes business rates boost

David Melhuish

David Melhuish

The Scottish Government is to give a much-needed lift to the Scottish commercial property development sector by not applying business rates until a development has secured business tenants for new developments.

Revealing plans to go further than the recommendations of the Barclay Review in a statement to Parliament yesterday, finance secretary Derek Mackay said the government will introduce a Business Growth Accelerator – which will also free all improved business premises from increases in their rates bill for one year.

The move comes after the Barclay Review found that the current system whereby improvements in a property lead immediately to increases in the rates bill, deterred investment.

The announcement forms part of a package designed to stimulate the economy, reduce red tape, improve transparency and reduce tax avoidance, including further transitional relief for hospitality properties and offices in Aberdeen City and Aberdeenshire and confirmation that the new day nursery relief will be set at 100%.

Mr Mackay said: “The Barclay Review presented us with the opportunity to evaluate how we handle business rates and improve methods to make Scotland the most competitive place in the UK for businesses to invest and grow. I committed to respond quickly and three weeks after receiving the report, I am delighted today to put our response into action.

“These new measures will help stimulate the economy and create jobs, which is key to readdressing the inequality that still exists in our society, as well as strengthening Scotland’s business appeal and generating new growth avenues.”

Welcoming the announcement, David Melhuish, director of the Scottish Property Federation (SPF), said: “The decision to not apply business rates for speculative development until the point of first occupation by a new business, is a major shot in the arm for Scottish developers vying for wider UK and international investment for Scottish commercial property. This measure gives developers a real advantage in vying for wider UK or international capital to support investment in Scottish jobs and the wider economy.

“Removing the risk of vacant rates for new development, added to the incentives under the Barclay business growth accelerator proposals, provides certainty for investors of nil rates liabilities until they have an income stream from the development, therefore providing a much-need boost for the competitiveness of the Scottish development sector.”

SPF also welcomed the extension by a year of the cap on business rates rises for the hospitality sector and offices hit by the downturn in the north-east economy but did express concerns with proposals from the Barclay review on listed buildings and further tax penalties on long term empty properties.

Mr Melhuish added: “The loss of rates relief after two years for complex listed building projects may make investors think twice about re-developing such buildings and this is something that we will continue to raise with Ministers as the Barclay review is implemented.”

Gail Hunter, director of RICS in Scotland, said the Barclay Review report’s recognition of the professionalism of the sector and the chartered surveyors working in it has been rightly echoed by Mr Mackay.

Ms Hunter added: “I am pleased that the review group acknowledged that ‘the current structure of the Assessors provides a good model of efficiency and has a key strength in its local knowledge’, and suggested SAA can be trusted to undertake changes to their operations on a voluntary basis.

“Elsewhere, Mr Mackay announced the introduction of General Anti-Avoidance Rule (GAAR) measures. RICS feels this is an ethical issue – one that can be negated by the use of RICS Professionals who abide by a strict Code of Practice and ethical standards.

“On the exemption for day nurseries, expanding opportunities to enhance and grow Scotland’s workforce is a key strategy for RICS, and the reduced rating bills could provide greater flexibility for working parents and guardians, providing the government can guarantee child care savings are passed on to users.”

Meanwhile RICS policy manager in Scotland, Hew Edgar, said steps to introduce three-yearly revaluations will “improve fairness and ensure rateable values are more reflective of market conditions”

He said: “RICS has made this call for a number of years now, and it is reassuring that the Barclay Review Group, and the Scottish Government, has finally listened to the sector.”

On the extension of Fresh Start Relief, Mr Edgar added: “Reliefs and supplements provide economic levers for government to target specific sectors – and we believe these sectors should be identified on the basis of delivering the highest economic impact.

“RICS believes in market transparency and fluidity, which is ultimately created by a stable and consistent regime which extends beyond parliamentary terms. This underscores the importance of lead-in times for the introduction and cessation of reliefs, as these allow businesses to plan for the future and enhance market certainty and confidence.

“RICS had been concerned that the changes to Fresh Start, as outlined in Barclay Review Report, provided market advantage to a particular sector, and this may not be conducive to market fluidity. It is, therefore, reassuring that Mr Mackay extended the scheme to include all properties.”

Scottish Property Federation and RICS Scotland outline pros and cons of business rates review

Ken Barclay

Ken Barclay

The Scottish Property Federation (SPF) has welcomed the investment incentives contained in the independent business rates review but has raised concerns regarding the complex challenges faced while redeveloping listed buildings.

Yesterday the external Barclay review group published its 130+ page report on non-domestic business rates, proposing 30 recommendations for the Scottish Government to consider including: measures to support economic growth; modernise the rates system; and increase fairness.

Among the specific recommendations made included: more frequent revaluations; reduction of large business supplement from 2.6p to 1.3p, and the institution of a ‘Business Growth Accelerator’ to encourage investment with a ‘one-year holiday’ on new items, e.g. plant and machinery or business expansion.

The recommendation for an annual business growth incentive estimated to be worth £45 million to grow the economy was welcomed by the SPF and follows calls by the real estate industry body for the Scottish Government to attract investment and development to Scotland through new commercial development.

In particular, it is proposed that there should be a one-year relief from business rates for new build properties.

The SPF said this will be particularly welcome for developers seeking to build new offices or industrial properties, or for investors to improve and enhance their existing commercial property stock. The tax incentive will also apply where there is a new tenant in place which should support businesses making commitments to relocate to new or redeveloped offices, shops and industrial premises, it added.

The Barclay Review also proposes an expansion of the fresh start scheme so that it is a more effective incentive to promote town centre businesses.

Despite this “welcome improvement”, the SPF said it will wait to see the further eligibility criteria to be applied for this relief should it be accepted by the government.

The SPF also welcomed the proposal to move to a three-year revaluation cycle and crucially to a one-year gap between the tone date (the date of market rental assessment) and the revaluation coming into effect.

While this should be combined with a review of how various property types are assessed, the SPF said it should make for a closer relationship between the property market and the rates assessment, rather than gaps of up to seven years which allowed the rating system to become hugely disconnected with market reality.

Paul Curran

Paul Curran

Paul Curran, chairman of the Scottish Property Federation, said: “With the supply of new offices and industrial stock at very low levels, the SPF has strongly argued that the sector needed a positive signal to boost investment and the jobs brought by new commercial developments.  The Barclay proposals are hugely welcome and we encourage the Scottish Government to adopt them as soon as possible.

“We very much welcome the review’s recommendations to reduce Scottish large business supplement to the same level as its English equivalent in 2020/21 – therefore bringing about a level playing field across the UK and ensuring that the Scottish real estate market remains competitive with our neighbours south of the border.

“Amongst some of the good news we are concerned about the recommendation on rates relief for listed buildings which often provide complex redevelopment challenges. The loss of this relief after two years may make investors think twice about re-developing such buildings to bring them back into use and we will continue working with Government to make them aware of these challenges.”

Plan to reassess “potentially distorting” Small Business Bonus Scheme were among several positive proposals described by RICS Scotland as “a welcome addition to the debate” surrounding Scotland’s competitiveness in the global marketplace.

Gail Hunter

Gail Hunter

RICS Scotland director, Gail Hunter, said: “This report has been keenly anticipated by the sector, and there are a number of recommendations which can be implemented quickly and with relative ease, giving breathing space for many rate payers

“When this review was announced, RICS expressed concerns over the stated aim to ensure recommendations were revenue neutral. RICS did not believe this was the correct approach, on the basis that the Scottish Government does not base this position on meeting any costs from policy changes in relation to other types of taxes.

“Throughout the report, there is recognition of the professionalism of rating practitioners and assessors in Scotland, which RICS strongly supports.

“RICS looks forward to hearing the thoughts of the Scottish Government and, in particular, from the Finance Secretary, who, having made changes to the non-domestic rates regime in the Scottish Budget last year, pledged to move quickly on the report’s recommendations.”

Hew Edgar

Hew Edgar

Policy manager Hew Edgar added: “The publication of this report is a welcome addition to the debate surrounding business rates.

“The proposal to introduce rates relief for extended or improved property may encourage expansion and business growth, while three-yearly revaluations would improve fairness and ensure rateable values are more reflective of market conditions. They would also negate the need for transitional relief.

“RICS has previously highlighted the potential of the Small Business Bonus Scheme (SBBS) to distort markets by offering a benefit to small businesses over others or, in some instances, act as a disincentive for small business owners to grow their business. In light of this, the proposal to review this is welcome, and RICS will participate fully in any such work. We will also undertake a full-scale review of the report’s recommendations and findings, and give feedback next month.”