Businesses report fall in property confidence

The general election is to blame for the first dip in property market confidence since the sector started to recover from five years of stagnation. Evidence of the downturn for the first time since the end of 1995 emerges in the latest survey of the market by the Confederation of British Industry and Grimley, the property consultants, which shows nearly as many companies planning to cut property holdings as increase them over the next six months.

Alistair Voaden, senior partner at Grimley, said it would be "inappropriate" for the Chancellor, Gordon Brown, to attempt to control the property market by raising stamp duty or bringing it within the value-added tax net.

"Having seen five years of inactivity, the last thing we need is any slowdown now," he said.

There has been widespread speculation that Mr Brown will raise stamp duty from 1 per cent to closer to the 8-10 per cent that is the norm in the rest of the European Union in next month's Budget.

The drop in property confidence is mirrored in a fall in general business optimism uncovered by the survey. Even so, Stuart Morley, Grimley's head of research, said the findings had come as a bit of a surprise, as the evidence on the ground is that the market is still quite strong. "We put that down as the period when the survey was taken. April-May was either side of the election and companies were probably being cautious."

Mr Morley said there was still a need for more development to satisfy demand, as the survey showed that shortage of suitable property was now a serious constraint on companies' expansion plans. Indeed, this shortage may have been as much of a factor as the election in explaining the drop- off in confidence.

He expected the next survey to show a return to a more optimistic stance by companies, but said: "I do not see it getting overheated to anything like the extent of the 1980s".

Today's survey shows that 22 per cent of companies plan to reduce their property holdings as opposed to 23 per cent looking to increase them. The resulting positive balance of 1 per cent is down from 6 per cent in the last survey in January.

Looking back over the past six months, a net 6 per cent of companies raised their property holdings, compared with a balance of 21 per cent who forecast they would in January. The retail sector remains the most buoyant.

The strongest growth over the six months came in the South-east of England, including London, and Scotland, with both the South-east and Scotland also most optimistic about the immediate future. The East Midlands, Northern Ireland and Welsh are the gloomiest.