The standard of care in Scotland is improving but with bank funding limited, there may be a huge under supply of care homes over the coming years to meet the demand.

As well as the standard of the care homes, the standard of the care provided by staff is under scrutiny now more than ever from the public, bankers and investors. The introduction of a new grading system in Scotland, whereby Grade 1 is inadequate and Grade 6 is excellent, is impacting on the market considerably. The system, which was introduced by the Care Commission in April 2008, is still in its infancy and is based on one inspection officer's view of the home and their relationship with the key members of staff within the home. The Scottish Government recently carried out quite a substantial marketing campaign to highlight the minimum standards a resident should accept in a care home. With Inspection Reports (where the Grades are explained) readily available on the internet, the public are now becoming more aware of the requirements of a good nursing home.

Whether operators like or not, the system is here to stay and it is affecting families' decisions on whether to place their relative in a particular home. Banks are also looking at the grading system more closely when deciding whether to fund existing care home businesses or not, and it is important that operators are well aware of this.

Many of the operators I have been advising have had a second inspection and have therefore had their grade increased. This shows that the grading system is already having an impact on the level of care and that facilities in Scotland are improving.

Nevertheless, it is a known fact that Scotland has an ever increasing ageing population and there is presently a need for more facilities. Research by Walton Healthcare Property Consultants has shown that in Perth there will be an additional 22,000 people above the age of 65 in 2028. Scottish Care have indicated by 2031 there will be need for 40,000 more beds to deal with dementia care alone. This means that around 15 homes a year will have to built to meet demand.

The difficult housing market is creating opportunities for care providers to develop new care homes in areas which were difficult in the past in areas like Bearsden, and thus, for the first time in many years, care providers have access to numerous high quality sites.

It not surprising, given this influx of land being made available, that operators are keen to develop. However, due to the current funding constraints and timing, many are considering buying and/or leasing 'turnkey' facilities, with perhaps an option to purchase at a later date. Leasing was something that only one or two operators would agree to in the past but, in my view, may become more common in the years ahead, particularly when funding for development is being restricted.

All of the major banks have indicated that they still have a strong appetite for investing in care homes. However, due to the number of uncertainties with development, banks are being a bit more cautious in allowing operators to expand, especially with new developments. Traditional bank finance is still available to some care home operators to buy and develop sites but a number of providers are entering into a pre-purchase or a pre-let with a developer.

In the 2008, we have seen new care homes erected in Coatbridge, Paisley, Aberdeen and Greenock. There is also a good number in the pipeline in South Lanarkshire, Prestwick, Saltcoats and Glasgow. However, these will not be enough to replace the existing supply and to meet the demand. If there is no further major development in the next few years, there will be a huge under supply of good quality homes which is a worrying prospect for the local authorities, the elderly and their families."