David Alexander comment: Edinburgh housing market on solid foundations

David Alexander is MD of DJ Alexander. Picture: Contributed
David Alexander is MD of DJ Alexander. Picture: Contributed
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A new report has claimed that the average price of a house in Edinburgh at the end of 2017 was more than 10 per cent up on the previous year and that the value of housing stock across the city rose by £7.5 billion across the same period to £68.9bn.

While the report reveals strong growth in the suburbs, the biggest uplifts have come from favoured locations closer to the city centre. Particularly interesting was the reference to the New Town, where there has been a drop in volume thanks in part to the LBTT “penalty” on high-value sales.

In my own experience low sales volume does not necessarily equate to lower prices – the opposite, in fact, as fewer properties coming onto the market will almost inevitably lead to greater competition for those houses and flats that do become available.

However in various off-central areas of Edinburgh where prices are lower than in the New Town, and where LBTT is not such a destabilising factor, there is a high level of sales activity, with prices going ever-higher.

This apparent dichotomy is, I believe, largely explained by a seemingly permanent level of demand over supply in inner-city Edinburgh. True, prices are rising across the capital but those looking for property in the suburbs (or perhaps prepared to settle for peripheral communities in West, Mid and East Lothian) do have a greater choice. By contrast there is only one New Town which will (for fairly obvious reasons) never expand and which cannot be recreated on some greenfield site. Similarly there will only ever be one Bruntsfield, Marchmont, Stockbridge or Comely Bank, all districts highly popular with the upwardly mobile middle class. A combination of price rises and lack of supply is even encouraging some professionals to consider Gorgie and Easter Road, once the preserve of the Hearts- or Hibs-supporting local working class.

As to why this should be so, one key reason is that Edinburgh’s inner-city districts survived the slum clearance projects carried out in many other cities so continuity of living close to the centre survives to this day. Also newcomers to Edinburgh want the complete “Edinburgh experience” when they move here – which means working and living in or close to the heart of the city and its many social and cultural attractions.

This is something that should continue to attract residential investors, despite the seemingly inexorable rise in prices. Given the dramatic increase in net taxation for landlords, rental income is falling as a proportion of overall returns on residential property. Capital growth is what increasingly matters – and barring some unforeseen economic or social disaster, the New Town (and other districts mentioned above) will continue to provide that.

So is investment in inner-city Edinburgh a “no brainer” for investors, especially those with the ability to purchase wholly or mainly in cash? In theory, yes, but with one major qualification. Some of the stock in the New Town dates back to the late Georgian period while even the most recent examples (at Comely Bank) date from just after the First World War.

Most of these properties I would reckon are still basically sound in structure but given their advancing years any buyer should be prepared to take on a “duty of care”. An investor, in particular, might therefore consider it appropriate to bite the bullet and have a full structural survey carried out prior to coming to a decision. And even if a property passed the full survey test, I might want to know about the others who hold title to the building (owner-occupiers or landlord-investors) and if they have a common agreement in place to pay for ongoing maintenance and repairs.

If so, this should offer sufficient reassurance that the cost (and hassle) of any future problems can be minimised – and that the property will be easily marketable once the time comes to realise the significant capital appreciation it will almost certainly have realised.

- David Alexander is managing director of DJ Alexander