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Independence may be 'heroic failure'

DOUGLAS Lowe, the executive chairman of Caledonian Trust has warned that independence could become another Scottish "heroic failure" even though he believes that his property investment business could prosper by letting out an "ugly duckling" office block to any new administration.

Caledonian Trust posted a reduced pre-tax loss of £62,000 for the year to June 30, down from £1.4 million in 2011.

Having been wary of the direction of the property market since 2007, the company now expects price rises.

Mr Lowe said: "No case can be made, or indeed has been made, for a flowering of enterprise after separation or of a relative stultifying strangulation of enterprise in Scotland resulting from its UK adherence."

He claimed an independent Scotland would have higher funding costs and faced reduced investment and economic growth, which could mean a fall in property prices.

"A separate Scotland would be smaller, less stable, with a shorter track record, and therefore inherently riskier," he said.

"Greater risk results in higher compensatory returns being required by investors, both inside a separate Scotland and outside it, reducing investment and economic growth.

"The higher cost of capital would also increase investment yields and reduce the value of existing investments in Scotland."

He added, though, that there could still be a "yes" vote.

"Unfortunately Scotland has a history of heroic failures and of their celebration, re-labelled as 'successes', and this choice might give Scotland an excuse for another such celebration," he said.

Caledonian's portfolio includes St Margaret's House on Edinburgh's London Road, a 92,000 square foot 1970s office building. This is its largest individual property and is currently let to 250 artists and artisans as Caledonian awaits redevelopment opportunities.

It has permission to build a larger development of residential accommodation, hotel, offices and commercial space on the site.

"Amongst other possible uses, the 231,000 square foot consent would be eminently suitable for any centralisation of government offices or for the expected needs of government following further 'devolution' or possible independence, or for a very large-scale relocation of 'back offices' from London," Mr Lowe said.

He said the value of the site is tied to house prices in the capital.

"Each marginal increase in residential value in real terms ceteris paribus, increases the combined residual value and development profit markedly: a 10% increase increases it by over £4m.

"An increase in house prices of at least this order in the next five years is highly probable," he said.

He added: "This ugly duckling will indeed metamorphise into a lovely swan."

In 2007 Caledonain delayed development of three sites in and around Edinburgh due to the economic conditions.

Last year Mr Lowe highlighted the risk of a further fall in house prices.

He said of the capital's property market now: "The performance of the local market can be fairly described as neutral over the year but improving now, possibly rapidly."

He believes that economic conditions have improved thanks to Government mortgage subsidy schemes.

"The besieged economy was relieved by an expeditionary force it did not detect," Mr Lowe said.

Rising demand due to improving credit married to an ongoing shortage in supply of homes suggests rising prices in the capital, he said.

But it is currently muted by sellers hanging onto homes waiting for increased demand to boost prices.

"Once this overhang on the market is clear prices could rise quite rapidly, as may have already happened in certain niche markets in Edinburgh," he said.

He added: "The group has positioned itself to take advantage of a housing market which I expect to improve over the next two years."

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