At the end of 2011, Edinburgh had the highest house prices of any local authority in Scotland: with the average house price over £225,000, 38% above the Scottish average. It also has the highest house prices of any city in the UK outside the south of England.
Given that the £1 million plus prime market normally has a much smaller number of properties, we would expect it to be more volatile in terms of patterns than the overall market. However, the average price of this ‘super prime’ property been relatively stable in recent years.
Transaction levels fell by over two-thirds in 2007-09, but there has been some recovery in the last two years. Many buyers in this market are cash or equity rich and are not as curtailed as others in the market who still depend on mortgage finance.
This market had a turnover of nearly £218 million a year at its peak. After falling to under £70 million a year in 2009, it has recovered and turnover was nearly £85 million in 2011.
Current market sentiment is subdued. We would expect this to translate into a flat, rather than a falling market, in 2012.
In the overall housing market, unless there is another sizeable economic shock, we would expect house prices and transaction levels to be broadly stable for the next 3-4 years. Sustained recovery is only likely to occur post economic recovery. The latest Bank of England economy forecasts suggest that the economy will not be returning to the trend rate of growth until 2013-14. Given that the property market tends to lag the economy by at least one year, this suggests that we will not see any strong uplift until 2015.
However, we believe that the strong demand factors in the market (e.g. population growth, household formation rates and people’s aspiration to own a home), as well as the relative lack of new supply, will provide support to house prices in the short-term and put upward pressure on them over the medium to long term. However, another economic shock, such as another full-scale international banking crisis, would lead to all forecasts having to be revised downwards.
Price growth in Edinburgh should be stronger, reflecting historical trends and because the Edinburgh economy will continue to be the engine of the Scottish economy in many of its key industries. Edinburgh prime property may also benefit from wealthy Europeans looking for ‘safe haven’ status and believing London to be over-priced. There are also a number of active foreign buyers in the market from Asia, especially China, Hong Kong and Singapore, who are attracted to Edinburgh because of its quality of life factors as well as its universities and schools.
Properties in the middle to upper echelons of the market should do better when the market does recover more fully. Quality, well-located property that can appeal to people with families will be particularly highly sought after due to demographic pressures and the lack of supply of such properties. In the £1 million plus market, we think it likely that prices and transactions will edge up in 2012.
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