Mon 28 Jul 2008
Steadfast Scotland?
The media’s money is on Scotland as an investment haven for builders and buyers alike – but is its property market really escaping the credit crunch? Natalia Gameson investigates.The Scottish property market has hovered under the press radar over the past few weeks, thanks to new research by Knight Frank that found Scotland’s annual capital growth as a very healthy 13%. Unsullied by the booms of its English, Northern Irish and Welsh neighbours, Scotland’s property market is thought to be the safest bet of the moment for speculators.
It’s a theory that is partly faithful to the facts, says Stuart Black, partner at Knight Frank. “But average selling prices are lower, so mortgage funding isn’t as big a problem for Scottish buyers.” Similarly, Black points out, Scotland, with its population of five million, sees significantly lower house trading activity than the south-east, minimising risk on this front too, as there is less to go wrong.
But the credit crunch has spread from the south, hitting the new-build flat market in particular, says Faisal Choudry of Savills. “There has been an increase in selling prices, which has led some to believe Scotland hasn’t been affected. But the past two months have seen a dramatic fall in sales and enquiry levels for new-build property, leading to redundancies and office closures at many leading building firms in Scotland. The range of incentives available highlights the desperation.”
AberdeenOne town that is sheltered from the credit crunch by the wealth of its oil industry is Aberdeen. The predominant jewel in Scotland’s crown, Aberdeen’s buy-to-let market is still pretty buoyant, with rents hitting south-east England prices of £550 and £850 and upwards for one and two-bedroom flats in the centre, according to Knight Frank. This is mainly thanks to a stock shortage, although these high yields also owe their dues to the city’s status as a top university town and business centre. House prices, meanwhile, have risen by nearly 16% in the last year to £187,200 in Aberdeenshire, and by 13% in Aberdeen City according to the Scottish Register – although these rises were marred somewhat by recent respective quarterly dives in value of 5.25% and 6.2%.
Experts are predicting that the city will become a centre for windfarms and renewable technology sources when its oil supply runs out over the next 30 years, so demand is set to stay high in the area. Building in this area will always be more worthwhile at least in the medium term than in Glasgow and Edinburgh because its number of planned residential schemes for the future is far lower, says Choudry. “The autumn 2007 Savills Central Scotland Residential Development survey showed that there were 64 new-build residential schemes with 50 units or more in Edinburgh City, containing a potential 28,492 private units. This also includes the planning application for Leith Docks of 12,000 units. In Glasgow, there are 122 future new-build residential schemes with 50 units or more in the city, containing potentially 23,242 homes.”
The city’s commuter belt is also holding its value well – in the Bank of Scotland’s annual Seaside Town Review, prices in Fraserburgh, Aberdeenshire were up by 46% to £101,482 in 2007. A cursory glance at asking price analyst site home.co.uk revealed that asking prices are now up to £118,625 from buyers looking to cash in on the good news. Nearly an hour away from Aberdeen, it’s popular with the city’s workforce - commuter belt development tends to be more of a purchase option for Scotland’s residents as traffic levels are much lower than in England.
“We do expect some decline now in seaside town prices,” said Martin Ellis, the bank’s chief economist, of the report. “But there will continue to be a premium for coastal properties as people always like to live beside the seaside.”
GlasgowAs in much of the UK, the situation for new-build flats isn’t great in Glasgow. House prices in the Glasgow city district fell by 6.1% in the last quarter, a fall triggered by the city’s high supply of flats. “The new-build flat market in Glasgow has been slow for a few years because of supply levels,” says Choudry. “This is mainly down to low rental yields for buy-to-let properties; buy-to-sell homes also suffer because there is not much capital growth, and buy-to-live homes are too expensive for the general public.”
In a now familiar refrain, new Scottish developer Capella recently confirmed it is reviewing the residential component of its Atlantic Square development, which would add 64 more flats to Glasgow’s centre stock. Capella has already admitted the company has problems with funding, and that it won’t be starting building work on the scheme for another year. Similarly, Clyde Property recently announced that as house sales across Scotland are down by 40%, the firm has recently invested £1.2 million in a new headquarters that will serve as a lettings centre, targeting short-term letters such as students and young professionals.
Developers looking to build apartments here should expect credit-crunch induced delays, says Choudry. “The bulk of future stock is unlikely to come on the market for another two years due to delays in financing, redesign and the large amount of stock remaining on the market.”
Black advises developers to look to regeneration hotspots along the River Clyde for profit. “Family housing in particular is in great demand in this region, as it can be let out to a broader cross section of commuters, families and students.”
EdinburghThe Edinburgh housing market is going through a similar period of flux, with house prices rising 2.6% to £233,840 last year according to the Halifax, although it is now taking between six to eight weeks longer to sell a property in the city on average, says Black. “City centre flat values have definitely peaked - although Edinburgh doesn’t have the wholesale carnage of the Leeds and Manchester markets, mainly because there’s been less market activity - mortgages don’t dictate the pace of the market as much in Scotland as a whole as the average buyer has more money to spend.”
Even after the credit crunch is over, building to let will still be a better option for developers, says Gordon Cunningham, head of residential property at Scottish law firm Tods Murray. “This will be better because the way prices are going, the old adage ‘buy not rent’ has been turned on its head. No one will now consider a short-term purchase in this location, even the short-term purchase people who plan to be in Edinburgh for a few years.”
The best of the rest
Heading north, some of Scotland’s best investment opportunities include Stirling, Dundee and Inverness, Black adds. "Stirling is a strong university town, as is Dundee. Close to St Andrew's, the city has had a lot of money spent on improving its infrastructure over the last decade; flights to its airport have also improved. Inverness is also getting very popular with retirees.” Black is predicting 5% annual growth for the next decade, thanks to national housing shortages – Scotland needs 35,000 per year until 2015 to ensure demand levels up with supply, but it’s not even building 25,000 at the moment, he notes.
Developers looking to develop in Scotland’s city centres, if density requirements remain high, should embrace the build-to-let model and investigate the less sexy sectors of retirement, student and shared equity accommodation, Choudry concludes. “Edinburgh’s university can only accommodate 25% of its students in halls of residence, while in Glasgow, this figure is 19%.”
Posted by Natalia Gameson
in Bank of Scotland, Capella, Clyde Property, Faisal Choudry, Features, Gordon Cunningham, Halifax, Knight Frank, Martin Ellis, Savills, Stuart Black, Tods Murray on Mon 28 Jul 2008
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