Scotland's property market is at its strongest since 2008, despite the EU Referendum, this year’s general election, higher tax rates than the rest of the UK, and a chronic lack of supply.
Should the Land and Buildings Transactions Tax (LBTT) be revised by the Scottish Government, the property market could potentially rival the performance of other markets around the UK, attracting greater inward investment, according to Savills’ latest research.
The findings were revealed at Savills’ annual Scottish Property Outlook seminar attended by 300 property experts in Glasgow on September 8.
Market activity is at its highest level across Scotland, with a total of 101,421 residential transactions during the year ending June 2017. However, the market above £750,000 is struggling to adjust to LBTT and witnessed a drop in transactions.
Andrew Perratt, head of Savills Residential in Scotland, believes that Scottish property buyers are at a “distinct disadvantage” due to the low rates of property taxation.
“Buyers in Scotland are paying £48,350 on a £750 thousand residential property for a main home or £70,850 for a second home,” he said. “In the rest of the UK, the tax would only be £27,500 for a main home or £50,000 for a second home. As a result, the average prime transaction price in Scotland has fallen from £572 thousand to £554 thousand in five years.”
The market in some price bands is still dictated by the political landscape, with higher rates of property tax in Scotland discouraging movement amongst local buyers and doing little to attract inward investment from other regions.
In addition, a vicious circle of demand exceeding supply is affecting house buyers in Scottish cities, with 11% fewer properties launched onto the market this year above £400,000 compared to the same period in 2016.
Perratt added: “The trend in Scottish cities is now to buy before selling. As a result, we are witnessing a chronic shortage of stock, competitive bids and strong premiums for properties launched onto the market at realistic prices, particularly in city and suburban hotspots.”
The latest figures from Savills revealed that the time taken for properties coming onto the market to be sold across Scottish cities has dropped to nine weeks, compared to 12 weeks earlier in 2017.
Looking at Edinburgh in particular, demand remains strong with current selling times averaging six weeks across all price bands, compared to nine weeks earlier this year.
These factors have fuelled Scottish house prices, which increased annually by 2.9% in June 2017.
“LBTT is putting the housing market under pressure,” warned Faisal Choudhry, head of Residential Research in Glasgow. “Particularly in Edinburgh where a lack of mainstream supply has led to fewer properties being launched and a subsequent drop in sales.”
With the number of sales falling for the first time in six years and shortages continuing to suppress transactions going forward, Choudhry added: “We are seeing a lack of fresh prime stock on the market. As taxation bites, more people are staying for longer in their homes, rather than moving and being faced with unaffordable tax bills. This trend is likely to continue, unless there is a change in taxation rates.”