Transcript TIF

The Environment for
Property Development
Economic and Policy
Forum of the Construction
Industry Council
23 April 2012
Peter Cosmetatos
Director of Policy (Finance)
British Property Federation
Session overview
> Introduction
> Context
> Specific issues, opportunities, challenges
> Conclusions
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Introduction
> The British Property Federation
> Lobbying to raise the profile of the commercial real
estate industry and improve policymakers’
understanding of its role and importance
> So that the legislative, regulatory and tax environment
within which our members operate allows them to
flourish and contribute to a successful UK economy
> Working with other industry bodies in the UK and
globally across the full range of relevant policy areas
> Your speaker – private sector legal/tax
background focusing on property and finance
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Context – economic/industry
> Persistently weak and uncertain economic outlook
> Banks trying to reduce historic exposure to
property
> Access to finance ever more difficult, and ever
more expensive – so making new property
investment and (particularly) development viable is
not easy
> But huge variations in conditions around the UK
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Context – policy environment (1)
> Fiscal consolidation and public sector cuts
> Much reduced public sector investment pipeline
> Localism, decentralisation and the LGRR
> (Some) local rate retention from April 2013 – will LAs
that are more ‘commercially’ interested in development
be better alignment with business?
> Local Enterprise Partnerships (LEPs), Enterprise
Zones (EZs), Tax Increment Finance (TIF) and
City Deals
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Context – policy environment (2)
> Other (generally modest, targeted, limited)
measures to support investment in infrastructure,
housing, etc.
> Community Infrastructure Levy (CIL)
> Planning and the NPPF
> Neighbourhood planning
> Tax regime
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – finance
> Development finance is limited and expensive
> Pre-lets and/or a strong sponsor usually a prerequisite
> October 2011 IPF/APB research spoke of falling loanto-cost ratios, rising upfront fees, margins and exit fees,
increasing use of recourse lending, and continuing
regulatory uncertainty for banks
> Reliance on debt and access to and cost of capital
generally differs enormously for different types of
sponsor (REITs, private equity funds, etc.)
> Viability is a key challenge
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – CIL
> CIL could be a major step forward, but serious
problems could mean it stymies development:
> LA viability assessments often unrealistic
> Developers should be allowed to deliver infrastructure
in lieu of payment of CIL
> Only net new floorspace giving rise to additional
infrastructure needs should be charged
> Transition: pre-existing planning permissions shouldn’t
be brought into charge by virtue of being amended
> Need for better and earlier consultation, provision for
exceptions and charging schedule review procedures
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – planning
> The National Planning Policy Framework (NPPF)
and its presumption in favour of sustainable
development (PFSD) is a big step forward
> Key question is how planning system will now work
in practice
> PFSD, brownfield first and town centre first
> Five year land supply to meet housing needs
> Transition where no ~NPPF-compliant local plan
> Need for (consistent, manageable, authoritative) new
guidance
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – neighbourhoods
> Localism Act introduces provisions for a
neighbourhood plan to be prepared by a
neighbourhood forum authorised by a LA
> Effective lobbying won recognition that
businesses as well as residents should have a
role, and business neighbourhoods are now also
contemplated
> Potential importance still uncertain, but
neighbourhoods could be significant
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – LGRR, etc.
> Local government finance reform – likely to
result in a more complex and less different
position than many had hoped
> EZs, TIF, city deals – a fairly limited and
piecemeal approach to encouraging growth and
investment (but good for areas that benefit)
> Effectiveness and impact of LEPs – jury still out
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Specific issues – tax
> Government focus on headline rates of
corporation tax
> Long term assault on tax relief for capital
expenditure continues
> Scope for the UK to develop its REIT (real estate
investment trust) regime further to support
particular areas of investment, e.g. social
housing, debt finance or infrastructure
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property
Conclusions
> A mixed bag in policy terms
> Lots of change, lots of new instruments and ideas
> Policy announcements sometimes seem more bling
than substantive detail
> Important that government doesn’t introduce new
barriers by mistake (CIL, financial sector
regulation, etc.)
> Ultimately, the solution lies in the economy,
confidence, occupier demand, access to finance
The Environment for Property Development – CIC EPF, 23 April 2012
The voice of property