Property

Unleashing Investment Potential In Scotland

Unleashing Investment Potential In ScotlandWell that was close. Last September Scots voted in a referendum on independence, and for a while there was a lot of hand wringing about what it would mean if Caledonia voted to chart its own course. Ultimately, the “No” vote carried the day, and it’s business as usual in the UK. In a way that makes Scotland an even more appealing investment these days.

Nice and Stable
“Ultimately, the ‘No’ vote means we now have a more certain environment for the property market to function. The number of sales completed across Scotland following the referendum in September and October was 63 percent higher than during the two month period running up to the vote,” said Knight Frank in a statement last November. And functioning it is. The country of just over five million, according to writer Arthur Herman, invented the modern world. Hyperbole or otherwise, Scotland has a robust mixed economy that includes banking (in Europe’s third largest financial centre) oil services, the arts (the Edinburgh Festival is one of the world’s best), golf-based tourism and whiskey, an industry valued at nearly £5 billion. Education, law and healthcare have long and storied histories in the country and industries to match, and as the capital, government forms a massive sector. Plus Scotland gave us the first James Bond and Robbie Burns Day. Who can argue with that track record?

But it’s the current property market that has gotten the attention of investors the world over. Scotland, and prime location Edinburgh, is a hotspot within Europe. Its biggest advantage is that it lags behind London on price, and those prices have room to grow. To compare, Hong Kong is averaging roughly £2,500 per square foot, London £2,000 and Edinburgh is roughly £400 per square foot. Prime central Edinburgh flats run upwards of just £400,000 (HK$4.7 million) and across Scotland flat prices average £160,000 (HK$2 million). At the top end of the market, rents have been skyrocketing for the past year and property advisory Savills predicts 23 percent price growth in prime property by 2018 and 19 percent in the mass market.

Nonetheless, there are hurdles to clear. Rising interest rates are a global concern, but the implementation of the Land and Buildings Transaction Tax (LBTT) in lieu of a stamp duty in April could have unintended negative blowback. “There is fear in the market over LBTT but despite this we are negotiating deals at all levels,” said Knight Frank Scotland’s Ran Morgan in November’s statement. “Prior to the introduction of the new levy in April, we expect to see an increase in the number of prime sales and homes coming to the market as both buyers and vendors look to move before costs rise.”

Countrywide Appeal
Investors in Scotland are great “custodians of historic properties,” and not just in Edinburgh, and other parts of the country have their advocates. The Isle of Skye, for example, has seen a surge in castle purchases. The oil services industry in Aberdeen is fuelling growth there reminiscent of Houston and Calgary. “It’s a small city and very much one industry-based. But the residential market there is unlike anywhere else in Scotland,” points out Savills Director of Residential Sales in Edinburgh Jamie Macnab. The country’s most expensive properties right now are in St Andrews overlooking the golf course, which can run as high as £1,400 per square foot, and Macnab predicts Asian investors joining the existing international market could have a major impact. “So many from Singapore, Hong Kong and China play golf, but they haven’t started buying yet. If they start it will move the market.” And then there’s the third property hub in Glasgow, the country’s biggest city, which ironically was the referendum’s “Yes” stronghold. The stability of continued UK association and devolved banking and finance is underpinning Scotland’s property sector.

But Edinburgh is still the star. It’s a small (World Heritage) city with limited stock and primed for rentals. “You’ve got people coming in on short term contracts, young people who want to live in the city centre and walk to work. First time buyers can ‘t afford to buy, so they rent,” explains Elspeth Rae, partner at BruceRae Property Management in Edinburgh. It’s also a lifestyle city, noted for clean air, blue skies, history, culture — similar to what London has without the crowds and affordability issues. “Most times I’m sourcing property that is going to be easy to let, with good returns and capital growth that will perform and sell well. It’s very much an investment market. You get a lot for your money. It doesn’t go up and down like London does,” Rae finishes. Investors, Rae notes, are particularly fond of the city’s central Old Town and New Town Georgian and Victorian townhouses with high ceilings and 24-inch thick brick walls, especially if they’ve been renovated.

Macnab agrees. “The reason Edinburgh has come up is affordability. London has become very, very expensive and the growth potential is much higher in Edinburgh,” he says, adding peak values in the city are still off 18 percent from their 2007 highs. “It depends on what you’re looking for but at the moment there’s more growth potential. Prices in Edinburgh have only been rising in the past couple of years and there’s still fantastic value for money there.”