Not given as much prominence in mainstream media, but of more relevance to this column, was the revelation that the number of cash buyers in London had fallen by 19.8 per cent between 2017 and 2018. Across England the decrease in cash buyers was a drop of 13.3 per cent whereas Scotland recorded a fall of just 2.9 per cent.
Of course most of these cash buyers do not purchase property using wads of £50 notes stuffed in an attaché case. The “cash” will be transferred from savings accounts or other liquid portfolios. Either way, cash investors have several options and these figures indicate that property appears to be taking a back seat for the moment.
It is clear that cash buyers are viewing property as more of a risk due to the uncertainties caused by Brexit, the direction of the economy, and more stringent taxation and regulation. Given all this, some investors with access to cash may consider it worthwhile squirrelling their money into a savings account, even if returning no more than 1.5 per cent per annum, until the current uncertainty blows over.
Despite this the shrewd investor will also recognise that all markets bottom out at some stage and investing at the bottom of a cycle is the surest way of making the greatest profit. The difficulty is in knowing precisely where the bottom of the market is. Deciding when to make that leap is where sound financial judgment kicks in. There will be few who doubt that in the next five years London and the south-east of England will again be areas where property investment produces good returns and long-term stability.
Nevertheless, the current situation in London does reinforce the argument for shifting location in property investment from one part of the UK to another, with Scotland, for example, not having experienced the exodus of cash buyers – indicating a positive view of the property market north of the Border. Buyers choosing Scotland over London and the south-east will be able to buy a lot more for their cash, a trend that we may see more of in the months and years to come.
Historically, however, the substantially greater amounts of money required to acquire a property investment in London have usually been justified by the level of rental income and capital appreciation not seen elsewhere in the UK. To achieve something close from Scottish properties, investors need to tap into national and local intelligence of the residential market, which is as diverse as the country itself.
One should be wary of making choices based on London and south-east commuting patterns. Most “white collar” workers (perhaps an anarchic term given an excessively casual dress code in many offices nowadays) commuting daily to Edinburgh or Glasgow find the train, bus or car journey times common in the south unacceptable. Therefore if you see a portfolio of six flats in a Scottish market town that can be had for the price of one in London, make sure it is “commutable” – or there is plenty of work locally.
Even within our two major cities it is vital to be aware of local shifting sands. Take the negative effect land and buildings transaction tax has had on high-end properties in Edinburgh’s New Town and West End. Consequently, more savvy investors with, say, £1 million to spend, have saved on tax by choosing to split purchases between three flats in more affordable areas popular with tenants employed in the professions. This has inevitably led to higher “entry costs” in these locations which in turn is making “blue collar” suburbs look an increasingly attractive option in terms of total returns.
There is no reason for residential investors to be wary of Scotland if seeking an alternative to London. But some homework on what makes our market tick is, to my mind, essential.
- David Alexander is MD of DJ Alexander