Property
Developers—future indefinite
The Earl of Kingston
In the last five months of 1973, the property industry suffered some of the most savage attacks which have ever been made on any industry or individual company. Investors and developers were accused of amassing vast 'profits,' of wholesale speculation, of replacing residential areas with faceless office blocks, and of forcing local authorities to grant planning permissions which made developers millions of pounds richer at the expense of local communities.
These accusations and criticisms, which were born out of a lack of true understanding of the role which the property industry plays in the social and economic life of the country, were voiced loudly in the press. Politicians soon took up the anti-property line. Left-wingers seized the opportunity of once again attacking the extremes of capitalism, this time represented by the evil 'property speculators.' Even the Conservatives joined in the act. Earlier, Mr Peter Walker had declared war on Centre Point, apparently not appreciating that Mr Harry Hyams's Oldham Estates owned forty-three office blocks in London of which forty were fully let, that Oldham had contributed enormously to the traffic flow in that particular area by giving land for road widening, and that it was incredibly difficult to find a tenant for such a building.
It would be reasonable to suggest that the three government measures concerning property, announced during the week before Christmas, were the direct result of the build-up of hostile opinion towards the industry. This had reached such a pitch that the Government felt duty-bound to introduce measures designed as a sop to floating voters and to give it credibility in its delicate negotiations with the unions.
Of the three announcements, the budget, the restrictions on the issuing of Office Development Permits and compulsory management and penal rating of empty office buildings, only the latter had less than a shattering effect on the industry. Shares in the sector, which had already discounted the type of budget measures which were generally expected, plunged to new lows.
, The budget measures of December 17 attacked the industry on three fronts. Development gains were to be taxed at income tax or corporation tax rates. A tax on 'first lettings' of new buildings was to be introduced. Some disposals of shares in land-owning companies were to be treated as income for tax purposes.
The 'first lettings' tax was the most vicious of the measures. For the first time a tax was introduced on an unrealised 'paper' gain. Many companies urgently reviewed their development programmes, and started to cut back on their plans for schemes in this country. Companies with schemes in hand suddenly realised that they might have to sell their developments on completion in order to pay the new tax. But the investment value of buildings has dropped dramatically as is proved by the spate of unsuccessful tenders over the last few weeks. Many companies may be caught short and not be able to sell at all. If they can, they might have to stand a loss on the development. One company chairman stated at his AGM that values had fallen by 10 per cent. Other commentators think that the fall may have been as much as 20 or 30 per cent.
If it was the Government's intention to force the property companies into liquidity crises and to erode the value of their property assets, then it would have been remarkably successful if its announcements had been turned into legislative action. As it is, we wait, as I write, to see if the new Government will continue with the plans which it inherited.
What the previous Government did not appear to appreciate fully, was the disastrous effect which anti-property legislation could have on holders of insurance policies, subscribers to pension schemes, savers who had put money into property bonds, to say nothing of the thousands of small investors in property shares who have seen the sector collapse with little prospect of short or even medium term recovery.
It has been reliably estimated that over £2,000 million has been invested directly in property by private and state-sponsored pension funds, and that over 15 million workers currently stand to benefit, on retirement, from the funds' investments. Many pension funds are now undertaking property developments themselves and these will be hit, along with the property companies, if stringent new taxes are implemented. For the insurance companies, the prospects are exactly the same, and it is the policy-holders who will be the losers in the long term.
For those who have invested in property bonds, the outlook is bleak. Countless small savers preferred to buy property bonds because they were convinced that this was one of the few investment mediums where they could reasonably expect to have a sound hedge against inflation. Most of them were probably unaware of the intricacies of the stock market and were tempted to bonds by the large-scale 'coupon' advertising. Over the last few months many of these same savers have seen the unit price of their bonds adjusted downwards because of the general
fall in property values. It impossible to see when this trend will be reversed, because of the political uncertainty HWiich surrounds the property industry. • It is unlikely that any government would wish to give ba4k to the industry the incentive 'which it so badly needs in order to restore confidence to the sector. But the Government must bear in mind that any penal legislation which it introduces will have a direct effect on the financial status of many millions of people in comparison with the handful who are directly connected with the industry itself.
Quite apart from any of the fiscal measures which were introduced by the previous government and which are unlikely to be implemented by the present one, controls of varying types are also affecting the property industry. The rigorous interpretation of the ODP restrictions and the freeze on business rents have had the opposite effect to the one the poli:ticians really wanted. Rental levels have soared to heights which would have been unthinkable .only two or three years ago, because the demand for office and -corr4mercial accommodation has e)4ceeded supply. While any erfork made by politicians to lead' the construction industry gentlif towards the housebuilding sectoimust be welcomed, this is no.wq to contain inflation. As rental levels are forced up by demand, the value of buildings rise and th property industry is accused of making vast 'profits.' The fact:thaik it is not the industry's fault 'that values rise or that the 'prefita' referred to are only on paper ankl are not available for distributioh as cash, appears completel$T
irrelevant to the critics. • , I am hoping that, in his budget., the Chancellor will have '.doriki away with the tax on 'first lettings' as this will have enormou's effect on millions of people; create incentives for developers to put up badly-needed new offices, shop's and factories, as this will stabilise rents and assist the fight againqt inflation; introduce taxes on. trim speculation as this is not what responsible property investmem and development is all about; allow more land to be released a:t realistic prices so that the housebuilding programme can be stepped up. Following these principles would certainly be doing the country a good turn.
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