Afshan Khan: Private rented sector needs tax incentives

Weightmans senior associate Afshan Khan says projects like Edinburgh's India Quay highlight the demand for high-quality rented housing. Picture: Contributed

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Private rented sector (PRS) developments have emerged as a major driver of the UK's regional construction and property markets.

They are also viewed as an attractive asset class. Yet despite this, developers in Scotland have appeared more reticent and we have not seen PRS schemes find as much traction here. PRS schemes are typified as being purpose-built and benefiting from a range of on-site amenities like concierges and gyms.

There is undoubtedly a demand for this kind of rented accommodation in Scotland, especially from the young professional market, as demonstrated by the success of schemes like India Quay in Edinburgh.

High-quality managed student accommodation projects, which roughly inspired the PRS model in the UK, have also been very successful. However, due in part to Scotland’s largely outdated tenancy legislation and a lack of government incentives, many developers have disregarded PRS as a lucrative growth area.

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Last April, the Private Housing (Tenancies) (Scotland) Act 2016 was passed by Holyrood. It has said the act will create a modern tenancy regime that balances the needs of landlords and tenants. Reception from industry has been decidedly mixed and there have been warnings introducing stricter controls on landlords could make rental portfolios less attractive.

The flipside is that new laws will deliver enhanced security of tenure for tenants and streamline the system. Short assured and assured tenancies are to be abolished and replaced with the new private rented tenancy. The duration of a tenancy will be open-ended, landlords will not be able to evict tenants on a “no-fault” basis and rent rises will also be tightly controlled. This will be the only type of tenancy used for residential lettings, and it’s hoped it will encourage more stable, long-term lets.

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A sizable investment is required to get PRS schemes off the ground, so the government should consider creating better tax incentives and offering other inducements to encourage developers.

Once PRS schemes start taking off and making a healthy return for investors, this will create momentum and help cultivate a rental market in Scotland that’s not only better geared for investment but also able to meet the demands of today’s private renters.

• Afshan Khan is a senior associate at law firm Weightmans (Scotland) LLP in Glasgow

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