Comment: Developers need strong foundations for growth

North-east developer Deveron Homes sadly went in to administration earlier this month, citing rising costs, tough market conditions and contract delays as factors.

It is a familiar set of challenges that faces property developers across the piece, from small family owned firms and medium sized regional developers to the national plcs whose marketing hoardings are prevalent on building sites throughout Scotland.

The unfortunate demise of Huntly-based Deveron Homes aside, the housing sector is slowly improving and compared to last year, there is a creeping confidence in the North-east market, with more people feeling sufficiently secure to make the huge commitment of purchasing a new home.

The global downturn and more recent slump in oil and gas prices impacted more harshly on the housing market in Aberdeen and the North-east, compared to the more resilient Central Belt. Now, with the price of Brent crude consistently north of $70 per barrel, there are undoubtedly signs of recovery, but little likelihood of a return to 2012-14 activity levels, which some would argue is no bad thing.

From the builders’ perspective, however, it remains an extremely demanding environment across the county. Rising costs of raw materials and labour are part of the quandary. Housebuilders report that in a number of regions selling new homes remains a challenge and many developments require significant levels of incentivisation to get the missives signed.

The introduction of the Lands and Buildings Transaction Tax (LBBT) to replace stamp duty was viewed by many in the industry as counter-productive and the initial view was that it was likely to result in less revenue for government coffers. Over the last financial year, it seems Holyrood has benefited from a better-than-anticipated “take”, driven in part by the buoyant Edinburgh market.

In Aberdeen City and Shire, LBBT remains particularly unhelpful for developers at the higher end of the market, with many having to contribute to the tax as an incentive offer to attract potential buyers. Other factors, such as the large amount of second-hand stock on the market, affect transaction levels in the North-east, specifically, and developers and sellers in general need to adopt a degree of pragmatism and be realistic around pricing if they are to achieve a successful outcome.

In contrast, the problem facing the Edinburgh market is a lack of supply and there is evidence that people are dissuaded from selling because the types of property they are seeking are just not available. Another major hurdle faced by developers across Scotland is the age-old bugbear of the planning process – not just the time it takes to get from drawing board to pouring foundations and laying the first brick on site but uncertainty over what the “planning gain” package will look like for each development.

There is a fear within the development community that some elected members still don’t “get” how development works and the essential ingredient of viability to secure the funding generally necessary to deliver development. At least one disputed north-east planning application shows a lack of willingness on the part of elected members to compromise, when market conditions have clearly forced the developer to reappraise the initial plan. This application, which was supported by planning officials and attracted minimal objections from the public, is at appeal.

Housing developers, like all businesses, have to be encouraged to invest in a particular city or region. Most currently represented in Scotland’s major cities and regions are active elsewhere in the UK. If they find planning authorities and councillors in, say, Newcastle, are more supportive and promise a more fluent, flexible and viable process for delivering new homes, it is entirely probable that they will shift operations and capital to can-do cities.

Rodney Whyte, partner and specialist in planning and development at law firm Pinsent Masons