Spotlight Scotland’s Prime Residential Property Market Autumn 2012

Savills World Research UK Residential

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On the cover: Barr, a Victorian property near Inveraray was launched at Offers Over £495,000 and sold within a month. Prime transactions in Argyll and Bute have increased at a higher rate compared to the Scottish average this year.Inside: Garscube Terrace, a desirable family home in the much sought after Murrayfield area of Edinburgh. Launched onto the market at Offers Over £950,000 and sold in less than a month.

This publicationThis document was published in August 2012. The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts.

Glossary of termsn Prime: refers to the most desirable and aspirational property by reference to location, standards of accommodation, aesthetics and value (£400,000 and above). Typically it comprises properties in the top five per cent of the market by house price.n Mainstream: refers to the bulk of the UK housing market with, for example, price movements monitored by reference to national and regional average values.

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Autumn 2012

Transaction levels in the prime residential markets have increased slightly year on year, with Edinburgh remaining at the centre of activity

n An overall increase in transaction levels in Scotland’s prime market masks falls in Greater Glasgow and other key locations. Aberdeenshire was second only to Edinburgh in terms of the number of prime sales, however the rate of increase in the region slowed to 1% and the average price remained more or less static. The increase in Edinburgh prime transactions was fuelled by out of town buyers and demand for prime family housing.

n The number of sales above £1 million so far this year is lower than in 2011. The majority continued to take place in Edinburgh. In a number of instances, rises in stamp duty have appeared to be a barrier at the top end of the market, particularly at over £2 million, where stamp duty now starts at 7%.

n Scotland’s record level of stock continues to suppress prices as buyers become increasingly value driven. We anticipate that prices will continue to fall throughout the remainder of 2012, rising gently during 2013. Price reductions are being used as a tool to generate interest in properties that have remained unsold. As such, prime city locations are offering value for money compared to some outlying areas, particularly in the West of Scotland where there have been less significant price reductions.

n Constraints on mortgage lending have continued to be a key factor in the fall in transaction numbers across the Scottish housing market. Cash buyers and the equity-rich will continue to play a disproportionate role, particularly towards the top end of the market, until banks become less cautious in their lending practices.

n While transaction levels have increased overall across Scotland, a sustained improvement in the health of the housing market will depend on a number of external factors. These include the stability of the Eurozone, any reduction in oil prices leading to a fall in inflation, interest rates remaining at a low level and an increase in job security.

SUMMARYAn overview of the market

Spotlight Scotland’s Prime Residential Property Market

Prime transactionsDespite some disruption in the spring, due to the Queen’s Jubilee, transaction levels increased slightly across Scotland, by 2%, compared with the same period last year.

However, this Scotland-wide figure has been sustained by much improved sales rates in distinct pockets. These were Argyll and Bute, Dumfries and Galloway, East Lothian and Edinburgh.

Greater Glasgow suffered an overall dip in transaction levels of -13%, with Renfrewshire proving the only location where they remained static.

Edinburgh remains the hub of the prime market in Scotland, with 301 sales over £400,000 compared to 153 in Greater Glasgow, an increase of 24% during the first six months of the year compared to 2011.

The capital has a shortage of family housing available in prime locations such as Morningside, Colinton, Trinity and Inverleith where demand is high from local buyers. Family houses between £500,000 and £1 million continue to trade well.

Edinburgh attracts a range of purchasers, including a growing proportion from outside the capital buying properties in the New Town and other prime central locations.

Buyers in the capital include cash-rich Aberdonians and expatriates based both in the south and abroad, many of whom are purchasing a Scottish base, or are parents buying for children coming to be educated in Edinburgh. Among buyers of New Town properties were those from The Netherlands, Hong Kong, China, Canada and South Africa.

Area 2010H1 2011H1 2012H1

SCOTLAND 877 836 853

Edinburgh 309 243 301

Aberdeenshire 139 163 164

Greater Glasgow 164 175 153

Tayside 58 50 48

East Lothian 41 30 41

Fife 36 42 27

Borders 19 29 23

Stirlingshire 20 27 19

Ayrshire 24 21 18

Dumfries & Galloway 13 11 15

Highlands 26 18 14

Argyll & Bute 11 7 11

TABLE 1

Second hand residential transactions at £400,000 and above

Source: Savills Research / MyHousePrice.com

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Spotlight | Scotland’s Prime Residential Property Market

In a sample of 20 sales of Edinburgh homes sold this year, 47% have been to buyers paying 100% cash. The remaining purchasers were not heavily reliant on mortgage finance, and were in a position to pay a proportion of the asking price as a deposit.

Million pound marketOnly 48 residential transactions took place at £1 million and above during the first half of 2012, compared to 64 in the first half of 2011, and changes in stamp duty have not helped. Stamp duty increased to 5% (from 4% in April 2011) for transactions greater than £1 million and 7% for those greater than £2 million. Within the space of a year, stamp duty for a £1.1 million property increased by £11,000 and for a £2.1 million property it increased by £63,000. This means for a home priced at £1.1 million, stamp duty alone equates to £55,000. Similarly for a house priced at £2.1 million the stamp duty equates to £147,000. Our analysis of the million pound plus market demonstrates the disparity between London and Scotland. While there were more than 100 sales in the second quarter of this year at £5 million or more in London, there were only 48 residential transactions above £1 million during the first six months in Scotland, the vast majority of which took place in Edinburgh.

Million pound properties, especially those located outside the capital, are often purchased as a life style choice rather than through necessity. As such,

GRAPH 1

Million pound market Residential transactions in Scotland greater than or equal to £1 million

Graph Source: MyHousePrice.com / Savills Research

London and overseas. This is an increase of 9% on last year’s figure.

Record levels of stockAccording to the Savills index, prime property values suffered a fall of -1% between December 2011 and June 2012. We expect prices to fall by a further 3% during the second half of this year. By the end of this year we anticipate prices will have fallen by 8% since December 2010.

The main reason behind this fall is the record level of prime property, above £400,000, currently available to buy in Scotland. Excluding new homes, there

prospective buyers appear willing to wait for the economy to improve, or for prices to reduce further, before committing to a deal.

International contextPrior to the downturn many Scottish sales at the top end of the market were generated by local entrepreneurs or financiers. This set of buyers has fallen away in recent years, and the Scottish market is relying increasingly from those from further afield.

In terms of buyers of million pound sales this year so far, 25% have come from outside Scotland, including

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48

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are around 1,500 homes for sale, 15% more than the same time last year. As a result of high stock levels, and the imbalance between supply and demand, it is likely that prices across Scotland will continue to fall throughout the remainder of 2012. Buyers are becoming increasingly discerning and vendors and agents are more realistic in their price expectations.

Price reductionsPrice reductions are increasingly being used by agents as a tool to generate fresh interest in properties that remain unsold on the market for a number of weeks. They are already having a positive effect on the number of sales taking place across Scotland above £400,000. We are forecasting gentle growth in prime values in Scotland during 2013 as the balance between supply and demand begins to restore. This is likely to be facilitated by an uplift in transaction numbers in the second half of 2012, primarily enabled by continuing price reductions.

We are currently seeing a significant increase in the number of prime properties undergoing a price reduction. So far this year there have been 907 individual price reductions on prime properties available to purchase in Scotland. This is 50% higher than the figure in 2011. A third of properties launched on to the market in 2011 had at least one price change, with the average price change equalling around -8%.

The huge selection of homes on the market for buyers to choose from, and their inability to raise mortgage finance, has conspired to ensure homes take much longer to sell. At the peak of the market it took an average of 12 weeks to sell a house across Scotland’s cities. In March 2012 this figure stood at 33 weeks. However, by August it had dropped to 26 weeks, so we are seeing some reduction, as sellers become more realistic in their price expectations.

In a thriving market, outlying areas traditionally attract those looking for value for money. However, in the current market we are seeing best in class properties in sought after locations (near schools, amenities and transport links) offering better value for money. This market attracts buyers who need to move for reasons such as education, jobs,

GRAPH 2

Savills StockWatch Scotland Properties advertised at £400,000 and above

GRAPH 3

Time on market (in weeks)

Graph Source: Home.co.uk (The Time on Market is the number of days a property has been listed for sale. A property may be withdrawn from the market for reasons other than a successful sale.)

Graph source: Savills Research

30

25

20

15

10

5

0

1,600

1,400

1,200

1,000

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600

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0

August 2008

August 2009

August 2010

August 2011

August 2012

families outgrowing their homes or downsizing.

Prices in outlying markets, particularly those in the West surrounding Glasgow, have not yet readjusted. They need to take account of local market conditions and be benchmarked against more sought-after areas.

Mortgage constraints The continued constraints on mortgage lending since 2008 have led to the dramatic fall in transaction numbers across Scotland. The number of loans for house purchases across

Scotland in 2011 fell by 7%, from 47,500 during 2010 to 44,200 last year. During the middle of the last decade, the number of loans averaged around 100,000 per annum across Scotland. There is unlikely to be a significant shift within the mortgage market in the short to medium term, with cash buyers and the equity-rich playing a disproportionate role in the market, particularly with regard to higher value homes. Transaction levels across Scotland are expected to remain steady, but low compared to the last decade, due to continuing constraints on mortgage lending.

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n Fresh stock – number of prime properties newly launched on to the market in Scotlandn All prime stock – total number of prime properties available to purchase in Scotland

n Scotland cities average

690637 614

888

1,292

955

1,072

1,165

1,268

1,151

1,325

1,462

1,021

283

12

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26 26

161

319

636

456

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674

416

177

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Spotlight | Scotland’s Prime Residential Property Market

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EconomyThe UK is currently in recession and independent forecasters are expecting little growth by the end of this year. The long term recovery of the housing market will depend on a comprehensive economic recovery.

n Eurozone: A withdrawal from the eurozone by a high risk country could initially prove a driver of house price growth in prime London as money and assets are moved to places of safety. However, the crisis could have an impact on bank finances creating a second credit crunch. This would affect the general UK market and might impact on sentiment in the prime markets.

n Oil and Middle East: The turmoil in the Middle East and North Africa has contributed to the rise in oil

Savills Research team Please contact us for further information

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 200 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

Faisal ChoudhryScotland0141 222 5880fchoudhry@savills.com

Yolande BarnesGlobal Residential020 7409 8899ybarnes@savills.com

Lucian CookUK Residential020 7016 3837lcook@savills.com

GRAPH 4

House purchase lending and residential transactions in Scotland

Graph source: Council of Mortgage Lenders / Registers of Scotland

45,000

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02006 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q2 2012 Q2

Residential transactions in Scotland Number of loans for house purchase lending in Scotland

The wider contextLondon remains a safe haven

In contrast to the markets of London, the performance of prime regional property locations across the regions and nations has been patchy since the market downturn and there have been relatively low levels of wealth flowing out of London.

While prices are continuing to fall north of the border, the bottoming out of the London market began three years ago and prices are now 21% above their 2007 peak in central London. There are signs that price growth is starting to level off in the face of renewed economic uncertainty and the higher tax burden associated with prime property ownership. However, in the wider global context, London continues to be seen as a relatively safe place to store wealth, due to its stable socio-economic environment.

prices and subsequent inflation. However, the safety and security of London as a city and finance centre has drawn increased investment. At almost £113 per barrel, the price of oil during August 2012 is 60% higher than the level during August 2007.

n Interest rates: Interest rates are expected to remain low according to independent forecasts. They are expected to rise next year as the economy gently grows although they are likely to remain at a low level.

n Job security: There are currently 2.5 million people unemployed across the UK and this figure is not expected to peak until 2013. The continuing uncertainty within the job market is acting as a further barrier to recovery. n

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n Residential Property Focus | Q3 2012n Spotlight | World In Londonn Spotlight | London’s Housing Supplyn Market in Minutes | Prime London Residential Markets n Market in Minutes | Prime Regional Residential Marketsn Spotlight | Scotland Residential Development Sales

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