City builders hit a brick wall as crunch bites

THE building of thousands of new homes in the Capital is in doubt as the credit crunch brings the city's construction industry to a virtual standstill.

Major developments are being mothballed across the city, with a string of building sites lying empty along the Waterfront and the city centre in particular.

An investigation by the Evening News has found that work has started on only six of the 29 major developments in Edinburgh with detailed planning permission outstanding in September last year.

Several developers admit their plans have been put on ice as a direct result of the state of the economy.

That means thousands of homes, including huge numbers of one and two-bedroom flats, will not be built in the foreseeable future.

The credit crunch has hit builders with a "double whammy" as banks are now reluctant to give them the loans they need and buyers are struggling to secure mortgages.

Some in the industry are pinning their hopes on an upturn in the market within the coming year, but with uncertainty ruling the day few are willing or able to press ahead just now.

Among the major projects to have been stalled by the credit crunch are:

• The third-biggest housing project to so far have been given the go-ahead on the Granton Waterfront – a 224-home development by Taylor Wimpey

• A 100-home development at Leith's Albert Dock planned by Cala

• A 73-home development at Granton Park Avenue, on the former Madelvic car factory

The future of a 75-home development by Telereal Services at the former Woodcroft Telephone Exchange on Pitsligo Road, Morningside, is also understood to be under consideration.

The mothballing of these schemes comes after plans to build 171 homes on one of the highest-profile sites in the city – the former Tartan Club at the Fountain Brewery – were halted as developers wait for the market to improve.

The difficult economic climate is believed to have been a major influence on the slow progress of many of the other developments, although some have pointed to other factors, such as infrastructure issues.

Michael Halliday, associate director of planning and development at property firm CB Richard Ellis in Edinburgh, said: "A year ago, it would have been a big surprise that so many developments hadn't started a year or more after consent was achieved. But now even those with planning consent are finding it difficult to get finance for these flat or house developments.

"The main conditions for starting building are can they sell the product and will it sell for too little to make a profit? If too many are choosing not to build, it has a knock-on effect on so many other areas, such as affordable housing, which the city needs."

Many speculators will have bought sites, got plans drawn up and achieved planning consent during the property boom, with a view to selling the site on to a developer for a handsome profit, added Mr Halliday.

But now many of these types of firms are being left with empty land for which they can't find a buyer.

Cala Homes said its plans to build 100 home at Ocean Drive in Leith's Albert Dock were on hold, despite securing planning permission last year, as it waited for the situation to improve.

"In common with other housebuilders, Cala is taking a prudent approach to new site starts," said a company spokesman.

"Faced with challenging market conditions, a lack of mortgage liquidity, continued uncertainty, and the well-documented over-supply of apartments at Edinburgh's waterfront, we have delayed the commencement of construction on the Ocean Drive development until the market improves."

Buredi – a consortium of The Burrell Company and council development firm EDI – has now put its Granton site and Fountain Brewery development on hold.

A company spokeswoman said: "In the light of current market conditions, Buredi is considering a range of options for this site, together with other sites in its portfolio."

One of the few schemes going ahead is Westpoint Homes' development at Newhaven Road, which will see 24 Hillcrest Housing Association affordable homes built by January 2009, followed by 79 private flats two months later.

The company said it was only able to push ahead with the development because it had existing lending in place through the Royal Bank of Scotland with terms agreed some time before the credit crunch.

Graham McNeill, development director at Westpoint Homes, admitted that a different approach had to be taken in the current climate.

During the property boom, all homes on new-build sites used to be snapped up well before sites were completed, meaning builders rarely had any cashflow problems. But with the current slowdown, developers are aware that this is no longer happening.

"A lot of people are very nervous – developers and first-time buyers," said Mr McNeill. "But we'll let others become stressed about having a stock of properties that they can't sell, and we'll let others mothball sites.

"In the past, developers certainly enjoyed more off-plan sales. You would want all sold off-plan as off-plan makes money at the other end. We now have to factor in the lag between completing and selling properties. Clearly that creates a cashflow issue and it is up to the developer to factor that in."

Councillor Paul Edie, the city's housing leader said the credit crunch is exacerbating an "acute" shortage of affordable housing in the city. He estimates 12,000 new affordable homes are needed in the next decade, despite developers talking of an "over-supply" of flats on the open market. The problem lies with so many buyers now being unable to afford the kind of prices which have become established in the Capital.

"The current 'credit crunch' has deepened Edinburgh's housing crisis," he said.

"We recently announced plans to build the first council homes for a generation, but other avenues will also have to be explored with the Government, registered social landlords and private developers to help combat this problem."

Craig Wallace, an associate director of planning and development at Jones Lang LaSalle in Edinburgh, said the number of developers stalling on projects with planning permission showed the depth of the industry's economic woes.

"If they go back to planning they will be faced with a whole lot of new legislation," he said.

"Planning is timely and costly and involves a lot of money being spent on design and public consultation, so it is no easy decision to ignore a consent."