06 Feb 2018
By Eric Curran, Managing Partner, DM Hall Chartered Surveyors
As we look back over the residential property market in Scotland in 2017, it is encouraging to note that the optimism expressed at this time last year has, by and large, been justified.
Lack of supply, with the exception of Aberdeen, has once again been the principal, indeed overriding, theme and the same market distortion looks set to dominate as we enter the first few weeks of 2018.
Aberdeen, of course, is a market unto itself, as London is in England. If there was one disappointment in the Granite City in the past year, it must be its huge missed opportunity to realign itself away from its dependence on oil and invite other industries to the dynamic north.
No doubt Aberdonians will argue that that is exactly what they have been trying to do but the local economy is still far too heavily dependent on what happens in the grey waters of the North Sea.
Aberdeen aside, the market in Scotland has performed admirably, with acceptable, sustained growth over the longer term and an absence of disruptive peaks and troughs – exactly the conditions property professionals fondly wished for in the bleak years of the recession.
As last year, so in 2018 there have to be concerns about the new build sector, which is growing fat on a diet of government incentives which it receives to the exclusion of all other property types.
It is legitimate to ask if Help to Buy schemes simply push up prices across the board while funnelling funds into one, effectively subsidised, sector. If the aim is to help first time buyers, why is that help confined to 5% to 10% of the market?
Another trend which bears scrutiny is the rising appetite for the private rented sector (PRS), which is now offering serious competition to more traditional social housing models. Cui bono is a reasonable response.
There is no doubt that some PRS schemes on the drawing boards are of high quality and aimed at sustainable community building. But do such schemes simply lock Generation Rent – those unfortunate 20- to 34-year-olds – out of home ownership for even longer?
The Scottish Government has to be given credit for trying to do something different to address the housing shortage, such as providing incentives and rental guarantees for Build-to-Rent projects.
But the best laid plans gang aft agley, as with the Land and Buildings Transaction Tax. Its zero rate on homes under £145,000 was intended to encourage lower earners into the market, but is has been seized on by investors who are delighted to construct portfolios with no transaction implications.
So, there have been artificial effects on the market and these are likely to continue, but there has been a reasonable level of performance and we have continued to see modest price increases.
The Brexit factor is waning. This is not because the consequent uncertainty has diminished. It is simply that people become used to anything and there is a palpable wish simply to get on with our lives while the geopolitical battles rage on in the distance.
Rather than hanging on for a suitable property to buy before selling, some individuals are biting the bullet, selling advantageously and renting while they wait for something else to come along. Whether this is a profitable strategy can only depend on individual circumstances.
Brexit fluctuations will continue in 2018, but the uncertainty of a second Scottish referendum is largely now old news and there is a sense that, despite the continuing clamour in Holyrood, it is extremely unlikely to happen in the foreseeable future.
Perversely, just as the market is stabilising in the way most property professionals have wanted, risk is being reintroduced by, of all people, the lenders.
In their continued drive for economies and speed, they are actively developing automated valuation models designed to create valuations using mathematical modelling combined with a database.
These calculations will be based on specific points in time and analysis of comparable values. But, in taking out the human element, they are also removing professional eyes on the property, opinion based on experience and deliberation and analysis.
This is a short-sighted strategy which has the potential to seriously disrupt the integrity of valuation and possibly even create another lending bubble – which could burst again at any time.
Does anyone seriously think that is a good idea?
Eric Curran is managing partner of DM Hall Chartered Surveyors, based in the firm's Glasgow North office.