Proxy-arp is a technique in which one network device answers the arp request intended for another host. When you configure a static route with a next-hop of the outgoing SVI interface, you rely on a device within that VLAN to proxy or fake its identity and accept responsibility for routing the packets to the real destination. Without a device that supports proxy-arp, this breaks which is probably what is happening here. This is also not a great design because it forces the device to arp for everything as opposed to just the ip address of it's next-hop like it would when you configure the VLAN IP address. It results in a large ARP cache which can be resource intensive.
HTH
Anthony
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