According to a new survey, sales of homes valued at £1 million and over soared by 21 per cent in the first half of 2019 in Scotland compared with the same period last year.
“So what do you have to say for yourself now, Mr David Alexander? How do you quantify this statistic with your ongoing claim that LBTT has skewered the top end of the housing market; indeed just two weeks ago wasn’t this column having yet another pop at the system? Go on, put that in your pipe and smoke it!”
This, I can well imagine, would have been the reaction of some following publication of the survey, produced by the Bank of Scotland. But as this is the festive season it seems appropriate to respond by paraphrasing Scrooge: “Bah! Humbug!”
This is because the basic figures paint only half a picture. The BoS press release was headed by a balanced statement: “Luxury homes sales soar in Edinburgh, but a mixed picture for the rest of Scotland.” Unfortunately, some sections of the media decided to give the story a “good news” angle which may have led members of the public to believe that all the complaints by professionals about the debilitating effect of LBTT on top-end property sales was simply crying wolf.
Rather than year-on-year, a more instructive comparison would have been between the first six months of 2019 and 2006, when thanks to the financial crash the sale of £1m-plus homes was about to fall off a cliff. The market has slowly recovered but only in the lower and middle sectors and in Scotland the problem at the upper end has been exacerbated by the draconian – and politically-motivated – rates of LBTT.
A closer look
That there has been a sharp rise in £1m-plus sales is because the low level of available stock has caused prices to rise for what is available, particularly in Edinburgh where the local economy is buoyant compared with the rest of the country. On the one hand, many potential buyers are still declining to trade up because of the LBTT surcharge. On the other, would-be vendors are reluctant to put their homes on the market because of the cost of LBTT on a subsequent purchase; even when “downsizing” this type of owner tends to go for a relatively expensive alternative (e.g. a luxury flat in a prime location).
Geographically the situation varies widely. Properties within the City of Edinburgh boundary accounted for almost two-thirds of all Scottish sales in the £1m-plus bracket. If you add East Lothian the figure, as a proportion of the total, rises to more than three-quarters. Yet just across the Forth, in Fife, relevant sales dropped by half, although a rosier picture was painted in Aberdeen, where they doubled.
The West was the antithesis. In Glasgow proper, sales fell by three-fifths, in East Dunbartonshire (which includes the affluent suburbs of Milngavie, Bearsden and Lenzie) by half and in East Renfrewshire (Giffnock, Clarkston, Newton Mearns, etc) by one-third.
It is also worth comparing Scotland with England and Wales, where LBTT on higher-priced property transactions is considerably less. Sales were up by a whacking 633 per cent in Geordieland and by 233 per cent and 228 per cent respectively in the East Midlands and Yorkshire and The Humber. The national figure across Wales showed a rise of 84 per cent.
One can only infer that London, where the figure dropped to minus 5 per cent and the wider South-east, where it was zero, were both special cases. That Scotland achieved an average 21 per cent increase in sales of £1m-plus homes compared to an average of Great Britain of 5 per cent, was wholly down to the collapse in London and the South-east.
After more detailed analysis it becomes clear that the Scottish “success story” is based almost entirely on the situation in Edinburgh, although even here recovery has been limited. And that the poor performance north of the Border compared with most English regions and Wales is undoubtedly largely a result of our current rates structure of LBTT.
- David Alexander is MD of DJ Alexander