SCOTLAND'S housebuilders are "battening down the hatches" and boarding up unfinished sites for at least another year, according to one of Scotland's leading construction lawyers.
Lindy Patterson, construction partner at Dundas & Wilson, said the latest trend to hit the embattled sector was for developers and administrators to weatherproof abandoned sites – a sign that they are not expecting the market to improve until 2010 at
the earliest.
Previously, where developments had been left incomplete, there had been hope that consumer demand would return or another company would buy certain sites out of administration. But Patterson said there was now an acceptance among most housebuilders and administrators that any "green shoots" would not take root in the sector in Scotland for a further 12 to 24 months.
"They are putting roofs on the properties and then battening down the hatches until the market picks up," she said. "The green shoots haven't arrived yet. We keep desperately looking for them."
This month Redrow provoked a wave of speculation that the market had hit the bottom when it announced plans to begin building again. But Patterson said Redrow was likely to prove an isolated case as homebuyers who signed advance contracts last year returned to the negotiating table to drive down prices. "There's a lot of contractual negotiation going on," she said.
On Friday luxury developer Applecross slipped into administration after it lost its lengthy battle to overcome the housing market slump.
Patterson said there were signs that the credit squeeze that paralysed the sector in 2007 had eased, and some banks were prepared to start lending again. But she said the industry was now trapped in a Catch-22 where lenders don't want to commit before they can be sure there is demand, and demand is dampened by the perception that lending conditions have not improved.
"There's a chicken-and-egg situation," she said. "If you're a lender, are you going to fund on the property side if the market is not there?"
Industry insiders say the first lenders to have returned to the market are foreign banks, particularly Germany's state-owned Landesbanks, taking advantage of the weak pound.
In the commercial property market, there are mounting concerns over office rents, which continued to fall in the first three months of the year according to the latest report from property consultants CB Richard Ellis.
Consultants have warned that the commercial property market has now reached a new stage where rental prices are under threat. They fear this could delay a recovery in the sector as investors can no longer count on a favourable income from tenants. According to the report, all property rents fell 1 per cent in the first quarter, after a 0.4 per cent fall in the final quarter of 2008.
Keith Hutchison, director of professional services at CB Richard Ellis (Scotland), said: "This suggests that the current capital correction may have further to go, with rental declines likely to impact more in the coming months."
However, the market has recently witnessed a limited number of investors bidding for buildings in prime locations, which come with long-term leases of over ten years. Standard Life recently sold its Exchange Crescent property in Edinburgh's Conference Square for a sum understood to be about £54 million. There has also been a flurry of buyer interest on Princes Street, particularly in the buildings occupied by Waterstone's, HMV and River Island.
