Scotland’s tax policies and the threat of Scottish independence are damaging commercial property investment, industry experts will warn John Swinney next week.
The Finance Secretary will hear that investment fell by 11 per cent last year, compared with a 23 per cent rise elsewhere in the UK.
Scotland is also falling behind the rest of the UK when it comes to attracting global investment to cities. Concerns about the future of the industry worth £6 billion and 134,000 jobs to the Scottish economy will be voiced when Swinney attends the Scottish Property Federation conference on Wednesday.
A document to be circulated among delegates titled “Scotland’s Commercial Property Sector – The Facts” states that “political uncertainty weighs heavily on investors’ minds”.
It adds that Scotland’s potential exclusion from both the UK and EU means Edinburgh has been ranked 18th in a PwC list of investable cities.
The contrasting performance of Scottish cities with the big provincial English conurbations was also emphasised by the document. Over the past decade Glasgow secured £5.2bn of commercial property investment and Edinburgh £4.9bn. The figures were exceded by the amount invested in Manchester (£8.2bn) and Birmingham (£6.5bn). And of the £30bn of institutional investment available to the UK for build-to-rent homes, Scotland accounts for just two per cent of activity.
Speaking before the conference, SPF Director David Melhuish said projects were being curtailed due to Scottish Government policy. He said the prospect of the withdrawal of empty rates relief in April has already affected the market. A project in North Lanarkshire has been scaled down and an industrial development in the Perth area halted.
“The government are shooting themselves in the foot, because if you can’t replace the old stock then you are not keeping up your potential tax base,” Melhuish said. Changes to business rates mean businesses pay a higher levy north of the Border, while the more progressive Stamp Duty replacement – Lands and Buildings Transaction Tax – has led to a fall in residential revenue.
Melhuish said the levy, which sees a 10 per cent rate charged on properties worth between £325,000 and £750,000, was a “massive differential” with the rest of the UK. “Our view is that it has just frozen up the market at higher value levels,” he said.
With 71 per cent of commercial property transactions in Scotland funded by overseas cash, the conference will focus on attracting global capital. Melhuish said global investors were monitoring the Scottish political situation both in terms of the constitution and domestic tax policies.
“We have to be aware that investors look closely at domestic policy,” Melhuish said. “It all adds up cumulatively to a differential which investors are not used to. In too many cases the danger is that we become too difficult to deal with and we have got to avoid that.
“There has been much debate on constitutional change, whether in the UK or Scotland. It is clearly going to weigh on the minds of investors based in the UK with a mandate to deploy capital on behalf of funds as well as that growing influence from overseas.
“There have been some signs that there has been a loss of appetite amongst UK funds, which traditionally were the main investors in Scottish grade investment property.
“We should be concerned about that. International investors, who have been growing as a proportion of Scottish investments, are looking at things on a global scale and they are comparing us with Berlin and Madrid and they will look to see what the domestic appetite is.”
Swinney will make the keynote speech at the conference, which will also be attended by MSPs and figures in the property and financial industries.
Last night, a Scottish Government spokeswoman said: “Scotland continues to lead the way in attracting global investment, and our property market is buoyant. In fact, last year was a record year for inward investment in Scotland, and Scotland remains second in the UK, only behind London.”