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Investors hit hard by empty property tax
COMMERCIAL property investors say that their profits are rapidly diminishing after being hit by the Government's empty property rates tax.
Industrial investors in particular are losing out because since April this year they have to pay full rates on their empty properties where previously they
got full relief.
Shops and offices, which were previously eligible for a 50 per cent reduction, also have to pay full rates.
Alan Smith, property director at industrial investor Towngate, based in Brighouse, believes
his is one of the worst-hit companies.
He said: "We have been hit fairly hard as a property company. I don't know in monetary terms how much we are paying but it's a fairly hefty amount
and it comes straight off the
bottom line.
"We only have industrial sheds, which were all previously exempt. I can't think of any company that is more affected than we are."
The company, which employs 15 people, is paying empty rates on 10 per cent of its 50 properties across Yorkshire and Lancashire.
Mr Smith added: "We have pulled some properties down, some properties that were unlettable. We pulled down an office block in Widnes. It wasn't only due to empty rates, but having to pay out for the empty property speeded up the process. There are a couple of others that we are also looking at demolishing.
"Empty rates has taken a lot off our profits. We were a very profitable business but now we are nowhere near as profitable, and there's not a great deal we can do about it."
Andrew Gent, partner at Gent Visick, in Leeds, said that the majority of large-scale commercial developments are funded by pension companies whose returns could now be reduced.
He recently investigated the possible impact of empty property rates on new industrial buildings in Yorkshire.
The 23 buildings he considered, all in excess of 100,000 sq ft, are located in the M1, M62, M18 and A1 motorway corridors.
Mr Gent said: "If you look at all of the new buildings over 100,000 sq ft along the motorway corridor, you're looking at a possible 9.6m in property rates derived from 23 unoccupied buildings. On average, it works out at 420,000 per building.
"The majority of these properties are owned by pension companies, and each company that owned one of these buildings would have to find, on average, 420,000 per annum, before taking into account the lost interest on the capital required to purchase/develop the property, security and maintenance costs over the period the property remains vacant.
"If all of the buildings were to remain empty for say two years, which is not an unreasonable proposition in the current climate, that's more than 18m wiped off pensions.
"That is just on 23 properties in the Yorkshire area. All have been built speculatively – brand new properties that are not approaching the end of their useful lives."
Mr Gent said that property companies which use their portfolios as security to raise capital for further development or acquisition will now have to adjust their "gearing" as property values are reduced, or face breaching their banking covenants.
He added: "The imposition of empty rates is a significant element in terms of reduced capital income adding to this problem."
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Thursday 09 February 2012
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