Good times poised to return for Scots
Now that the uncertainty has gone, momentum is expected to gather, writes Peta Tomlinson
There's nothing like uncertainty to set markets wobbling, and Britain's property sector is no exception.
Last month, it was the referendum in Scotland. Voting "yes" to independence would "reverse the hard-won gains of the recent housing recovery", wiping £31,000 (HK$388,693) off the average house price in Scotland, warned one source, the house price website Zoopla.
Buyers were reluctant to enter the market ahead of the referendum, concedes Ran Morgan, Knight Frank's head of Scotland residential, adding that this was "especially true for buyers from outside of Scotland". So prices remained static across all regions over the course of the second quarter.
The exception, suggests Oliver Knight, of Knight Frank residential research, was the prime market. "In fact, up until the last couple of weeks, the referendum had surprisingly little impact on the prime market. We experienced a lot of activity among buyers with, if anything, a lack of stock as opposed to a lack of demand."
Since a decisive "no" vote transpired, many analysts now predict a new wave of activity to push forward the gains of the past year. The turning point in Scotland reached a turning point in mid-2013, Knight says, when, "following three years of falling or static prices, we finally started to see growth as confidence in the market returned and buyers and vendors became more positive about the potential for future growth".
In the first quarter this year, house prices in Scotland grew by 7.6 per cent - the fastest rate in six years, according to the Nationwide house price survey, although still below the British average of 9.2 per cent growth.
Now that the brakes of uncertainty are off, momentum is expected to gather. "One thing markets don't like is uncertainty," Knight says. "The [referendum] result means this doubt has been removed and there is a more stable environment for the property market to function. This, combined with growing consumer confidence, should allow a return to more normal trading conditions."
Recent gains have been hard won. Property values in Edinburgh City lost 20 to 25 per cent from 2008 to 2011, clawing back just 10 per cent since, Morgan says. Rural areas lost 25 per cent-plus, gaining less than 10 per cent since.
"There has been a positive response [to the referendum result] and life feels 'back to normal'," Morgan says. "We will benefit from the continuing economic recovery in the UK."
The referendum has been "a good global PR case for Scotland", he adds, "and we expect renewed interest next year. Buyers are able to capitalise on the fact that prices remain below peak levels."
Edinburgh, Aberdeen and Glasgow, and rural counties within commuting distance of large employment hubs, will perform the strongest, Knight Frank expects.
Now, the London property market is the political hot potato, with the Labour Party taking plans for a mansion tax, with a £2 million trigger point, to next year's general election. Zoopla again joined the chorus, warning of a "heavy burden" this would place on London and the southeast, where most of the properties valued at more than £2 million are located. Homeowners in those areas, Zoopla argues, would bear 95.9 per cent of the additional £1.63 billion cost burden.
However, CBRE has released a report stating it does not believe that the mansion tax would impact the market significantly in the long term, "because the tax liability is likely to be modest in comparison with long-term house price growth and therefore easily absorbed by cash-rich owners".
Nevertheless, data released by mortgage lender Nationwide shows a 0.2 per cent fall in London house prices in September. Even though, when viewed over the quarter, values still rose, the first monthly decline since April last year was taken by some as a suggestion that prices in the British capital are starting to level off.
Jennet Siebrits, CBRE's head of residential research, UK, responds: "The latest Nationwide house price data shows that London prices increased by 0.9 per cent this quarter [Q3], which equates to a 21 per cent annual house price growth. This is indeed down from 26 per cent last quarter.
"However, the market remains very strong. We have been expecting growth to soften in the second half of this year, largely as house price growth of that magnitude is not sustainable or desirable over the long term. Average annual long-term growth in London is nearer 10 per cent and that would be a more sustainable rate of growth over the longer term."
CBRE's forecasts suggest growth in prime central London of around 12 per cent at the end of this year, then 31 per cent over the next five years. For London, the figures are 20 per cent and 30 per cent, respectively.
"The new-build market continues to be popular with overseas buyers," Siebrits says. "However, we have a resurgence of domestic buyers, which is underpinning demand. Sales rates remain at a record high of 63 per cent across greater London, and higher at 66 per cent for central London."
Despite tentative signs of a slowdown in activity at the beginning of the year, the market remains buoyant and the resurgence of domestic buyers has rebalanced the market, Siebrits says. "There has been a pick-up in construction, but there remains a marked demand-and-supply imbalance, which continues to put pressure on prices. We expect house-price inflation will end the year at around 20 per cent for central London. Looking forward to next year, we expect house price growth to slow."
London's residential property market continues to dominate the political landscape, Siebrits notes. After the Labour Party reaffirmed its commitment to a mansion tax, the Conservative Party countered with a pledge to build 100,000 new homes at 20 per cent below the market rate for the under-40s. "The housing market will remain a key topic in the run-up to next year's general election," she says. "There is likely to be a slight hiatus in the market in the period immediately running up to the election until the colour of the next government is confirmed. However, we expect normal activity to resume shortly after and over the medium and, longer term, the London market remains a good investment."