The Scottish Property Federation (SPF) has called for safeguards to protect investors from the long-awaited Land Reform Bill which it fears could constrict development on brown and greenfield sites.

SPF director David Melhuish told the Sunday Herald that, although many assumed that the bill would exclusively impact remote and rural Scotland, the legislation could hit mixed urban and suburban development.

“There is a risk long-term projects developing sites which involved a lengthy period of land remediation and obtaining planning permission could be affected by the bill,” Melhuish said. “That is a risk investors would have to factor in and we believe there should be strong safeguards included in the legislation to stop that happening.”

Melhuish expressed concern over the bill’s proposal to allow Scottish Government ministers to intervene to force the sale of land when a landowner is deemed to be obstructing sustainable development. He argued that this largely “subjective” test of a landowner’s management of land is a particular concern for the commercial property sector as it would amount to a form of compulsory purchase order.

But there is relief in the property sector that the government has rowed back from including restrictions on the overseas ownership of Scottish property beyond the EU – restrictions which were mooted in the recent consultation on the bill.

Melhuish also said the property sector would have opposed the imposition of any fixed limits on private ownership, a proposal which the government has discarded.

If the proposal on foreign ownership finds its way back into the final legislation it would impact on the billions of pounds of overseas investment that have started to pour into Scotland’s commercial property sector since the recession, the SPF believes.

“For us, the key issue is we want to make sure that the country remains competitive and attractive to international finance and capital,” Melhuish said.

He said that the imposition of any restrictions on foreign ownership would prejudice investment potential and make Scotland less competitive in the investment market and this would have “negative consequences for the attractiveness of Scottish investment properties and values”.

A report published last week found that, whereas 72 per cent of investment finance for the sector before the recession had come from UK banks and building societies, this proportion had fallen to 43 per cent in 2013 as a result of burgeoning overseas investment, which included £18 billion (10 per cent of the £180bn of drawn funding in 2013) from German banks and £38.7bn (21.5 per cent) from other overseas banks.

In its response to the consultation, the SPF pointed out that many of Scotland’s largest commercial property deals of recent years (such as Edinburgh’s Caltongate development currently being built with South African cash and the St Enoch Centre in Glasgow, now owned by the US private equity group Blackstone) had attracted huge finance from outside the EU. It also pointed to big investment from non-EU firms operating from offshore financial centres such as the Channel Islands and the Isle of Man.

“Ownership restrictions could have significant consequences for future investment decisions by these investors,” the SPF said.

“If such bodies are deterred from investing in Scottish property then there will be negative consequences for the attractiveness of investment properties and values.

“Scotland must remain open for business with non-EU investors that wish to invest in property in Scotland and any proposals that would prejudice that investment potential, and make Scotland less competitive in the investment market, should be avoided.”

David Watt of the Institute of Directors Scotland said the legislation had potential to “fundamentally change the economic landscape of Scotland”.

“This could be important for Scotland’s rural communities and the potential implications could be very significant in terms of local economies,” he said.

Although Watt “understands” the government’s aim to widen property ownership and build a fairer society, it had not yet made the economic case for the proposed changes. He said the outcome of community ownership projects, such as those on Gigha and Eigg in the Hebrides, had “mixed results”.

While community ownership attracted investment into renewable energy projects and created potential to develop tourism, Watt said he has “real concerns” about the impact of the legislation on the economy.

“The government could argue it is unfair that so many people own so much of the countryside, but a lot of money has been invested in many rural estates,” he said. “Over the centuries owners have put in millions. In some areas it is hard to see how the changes would make them economically viable in any way.

“We are interested in the potential for economic development, but we are quite unclear how it would come about.”