The controversial empty rates tax could contribute to further falls in commercial property transactions and business lending as it will further discourage banks from lending to property, according to Manchester based financial adviser Bridging Finance.
Chris Baguley, MD of Manchester-based Bridging Finance, said: ‘If a lender is forced to take possession of a commercial property from a beleaguered owner they will need to lease or sell it in a market where values and occupier demand are both declining or become liable for the empty rates tax.
‘A recent example we’ve seen involved a site of 87,400 sq ft which would have faced the client – or a lender in a possession situation - with an empty rates bill of around £126,995 pa. In the current climate this is a huge disincentive for banks to lend against commercial property.
‘Following rate cuts and recapitalisation measures the government is now putting pressure on banks to kick-start lending to businesses, yet they have ignored the issues presented by this tax. These will become more severe in 2009 when the tax is calculated using peak inflation figures from September 2008 and then in 2010 a revaluation will see it based on property values between April 2003 and April 2008.
‘The empty rates tax will exacerbate the fall in commercial property transactions and prevent banks from lending to businesses that need to use their premises as security. If the market was buoyant it might be less problematic, but drastic changes are required in light of current conditions,’ he said.
Recent figures published by the Royal Institution of Chartered Surveyors show that commercial property transactions have now shrunk for the fourth quarter in succession, with real values down by as much as 50% in dollar terms compared to June 2007.