There are few better guides to overall confidence in an economy than the residential property market. And amid all the dark clouds that beset us, you can always rely on an estate agent to cheer us up.
The market is invariably “firming up”. Our dilapidated shell has “attractive character” or is “strong in period features”. It has “opportunities for uplift” or just needs “a little refurbishment”. Demand is always “strong in your price band”. And the market never, ever falls: it may experience “a mild correction”, or “settling ahead of the spring season”.
So it is with Savills Scotland, agent of choice for the high-end Perthshire piles, the spacious villas in Bearsden and the imposing manses in Morningside. The Savills annual presentations are always crowded, their summaries confident and their photographs sublime. I remember one a few years ago where an unusually small-looking property in Edinburgh was highlighted. But it wasn’t a small property at all, the agent insisted. “It is a muscular bungalow.”
So how fares the muscular bungalow that is the residential housing market? The reassuring Savills tour d’horizon of euphemism and anxiety repression has continued. There are, of course, darker undertones this year. We are in a slow-growing economy, with subdued growth in incomes, higher taxes on transactions at the upper end, Brexit uncertainties and slowing transactions. Ah! All but a pause for breath on the unending staircase of ever-rising values.
The latest summary from Savills has struck out on an upbeat note. Despite the EU referendum, this year’s general election, higher rates of taxation than the rest of the UK and a chronic lack of supply, “Scotland,” the first sentence of its press release proclaimed, “is experiencing the strongest property market since 2008.”
Its findings were launched at the firm’s annual Scottish Property Outlook seminar attended by 300 property professionals in Glasgow last Friday. Market activity across Scotland, it reported, was the highest for nine years with a total of 101,421 residential transactions during the year to end June. However, the market above £750,000 is struggling to adjust to Land and Buildings Transaction Tax (LBTT) and witnessed a reduction in transactions.
Lest Savills be accused of gilding this brick and mortar lily, a cautiously upbeat assessment has also come from the Registers of Scotland. Its latest monthly report shows that the average price of a property in Scotland in June was £144,253 – an increase of 2.9 per cent on June in the previous year and an increase of 0.1 per cent when compared to the previous month. However, the pace of increase was lower than the UK where the average price of £223,257 marked an increase of 4.9 per cent compared to June in the previous year and an increase of 0.8 per cent when compared to the previous month.
It noted the volume of residential sales in Scotland in April was 7,908 – up 16 per cent on April 2016 (reflecting a tax-hike depressed period) but a decrease of 14.2 per cent on the previous month.
Across Scotland, all property types showed an increase in average price in June 2017 compared with a year ago.
Now all this is heartening, given the concerns over Brexit and the impact of higher Land and Buildings Transactions Tax. For the time being at least, it seems Scotland’s residential housing market has held up rather better than many had feared.
But now come the dark undertones. House buyers in Scottish cities, reports Andrew Perratt, head of Savills Residential in Scotland, are facing “a vicious circle of demand exceeding supply. The trend in Scottish cities is now to buy before selling. As a result, we are witnessing a chronic shortage of stock, competitive bids and strong premiums for properties launched onto the market at realistic prices, particularly in city and suburban hot-spots.”
But his biggest concerns were over “punishing rates of property taxation” which, he said, were “putting Scottish property buyers at a distinct disadvantage. Buyers in Scotland are paying £48,350 on a £750,000 residential property for a main home or £70,850 for a second home. In the rest of the UK, the tax would only be £27,500 for a main home or £50,000 for a second home. As a result, the average prime transaction price in Scotland has fallen from £572,000 to £554,000 in five years.
“The political landscape is dictating the market in some price bands, with higher rates of property tax in Scotland discouraging movement among local buyers and doing little to attract inward investment from further afield.”
And the message for Holyrood was blunt. “Should the Scottish Government reconsider LBTT rates,” he said, “then the property market has the potential to rival the performance of other markets around the UK and attract greater inward investment.”
But how likely is that? There was mention in last week’s 160-page Programme for Government of a further drive on land reform legislation and a hint that local authorities may have extra powers to vary the tax on second homes. This could open up the prospect of a surcharge for second home ownership. While such a move would be designed to tackle the incidence of empty homes, it would be of concern to many holiday home providers across rural and highland Scotland and worsen the plight of many smaller towns and villages chronically dependent on tourist and visitor businesses.
It is easy for politicians to take a swipe at rural communities and holiday home owners in particular – and then lament the decline of rural Scotland. Arguably the great charm of estate agent brochures on house purchase in highland Scotland is the stunning beauty of the landscape and the setting. It is the envy of millions who live in cities and who yearn for the heather-clad glens and sweeping views across our rivers and lochs.
This is surely a wonderful natural asset we should be promoting to the full but instead we opt for rates of property tax that are higher than for equivalent properties elsewhere and discourage property use. Then we wonder why the revenue from LBTT has failed to meet government forecasts!
For the time being, Scotland’s residential property market has shown resilience. But the handicaps it faces longer term should not be lost in euphemism.