Edinburgh still a good place to profit from property - David Alexander

Perhaps the most remarkable economic phenomenon over the past 11 months has been the resilience of the housing market, which can surely only be part explained by the reductions, albeit temporary, in LBTT and Stamp Duty on either side of the Border.

But what of the investment market, that “under-the-radar” area which is of little interest to the general public but indirectly affects many because of its influence on the supply of rental housing?

According to one new survey, the last six months saw average rental growth across Great Britain, the one exception being inner London, where there was a drop of 15 per cent.

I suspect there may be one factor driving this in London which is certainly true of Edinburgh – the number of previously short-stay letting properties being switched to the long-stay sector of the market because of the collapse of the tourist and leisure industries and therefore leading to a surplus of stock. Happily, Edinburgh rental properties have not experienced a rental reduction of 15pc but there have been various levels of decrease and lucky are those landlords whose monthly income has simply stayed the same as before.

For all that, investment demand, while down on recent years, is still relatively strong given the circumstances. “Professional” investors from south of the Border and further afield still see Edinburgh as a portfolio that will deliver in the longer term, taking the view that any reduction in rental income is temporary and will recover in the medium-term – backed up, of course, with a long and sustained record of substantial capital appreciation. And, of course, for non-residents, the value of an Edinburgh property, or one anywhere in the UK, is boosted by the current exchange rate.

There is continuing interest even among the dilettante. They may not be experts but they do have sufficient nous to recognise that property – despite current woes – looks a good alternative to a highly-volatile stock market and to a savings environment where returns of below 1pc per annum have become the norm. And of course historically low interest rates – and a reasonably-benign attitude among lenders to buy to let mortgages - are continuing to encourage those who need to fund their investments partly with borrowed money.

While the residential sector is in reasonably-good health the same, of course, cannot be said for commercial property as a whole. But there hasn’t been the big rush among lower-level investors from commercial to residential that might have been thought. One unexpected consequence of the pandemic has been the revival of suburban retail, in comparison to city centres which have fallen off a cliff. There’s a feeling that when things return to normal many people will still want to use their local neighbourhood (a healthy, open-air walk away) for convenience shopping and services, making good-trading units in these locations an appealing investment option.

And of course, just as before the pandemic, shops had one big advantage over flats – the leasing conditions that make commercial tenants responsible for the cost of insuring and repairing. There is also the bonus that shopkeepers, unlike some residential tenants, are unlikely to hold noisy parties that upset the neighbours!

Despite being cautiously optimistic I don’t want to give the impression that “bright sunny uplands” are just over the horizon. Furlough is currently playing a big part in holding things together but what happens when that ends?

I am always mindful of the words of an insolvency expert who once told me: “Most companies go bust when the economy is coming out of recession, not going into it.”

So it’s still a case of keep calm and carry out.

David Alexander is managing director of DJ Alexander