David Alexander: Edinburgh’s property market in good shape

'Reasons for the current situation include continued local economic growth,' says DJ Alexander boss David Alexander. Picture: Steven Scott Taylor
'Reasons for the current situation include continued local economic growth,' says DJ Alexander boss David Alexander. Picture: Steven Scott Taylor
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According to one of the UK’s most popular property websites, homes in Edinburgh are the most in-demand in the country, with residential properties in the capital showing 145 per cent more interest among prospective buyers than the national average.

The even better news is that this buyer interest seems to be leading to sales.

Edinburgh seems to attract a certain new employee for whom the pull of the city is as much as the job

Yes, Edinburgh is experiencing one of its periodic “booms”, regardless of what is happening elsewhere in Scotland. However, this time it is not the New Town, Murrayfield or The Grange that are in demand but lower- to medium-priced inner city locations and family-type estates on the periphery of the city. The reason for this is quite simple: an excess of demand over supply.

• READ MORE: Major UK cities see growth in house prices

While relatively long-term renting has taken hold in the city there are still substantial numbers seeking to move either from short-term rentals or the parental home into owner-occupation. In this respect, LBTT, the Scottish Government’s controversial replacement for stamp duty, has at least been partly successful because the properties most in demand in the capital are generally priced up to £300,000 – which comes close to £333,000, the figure at which Scottish buyers start to pay more in property purchase tax (which LBTT effectively is) than their counterparts in England and Wales.

Reasons for the current situation include continued local economic growth, which one hopes will be further boosted by the recent City Deal for Edinburgh and east Scotland. Also people moving to the city tend to want live within the city boundary rather commute from an outlying town.

Edinburgh seems to attract a certain new employee for whom the pull of the city is as much as the job. As for locals, they realise that Dunfermline or Livingston offer “better value” in square footage terms but they also are aware that going the extra mile financially and gaining a toehold on the Edinburgh market will benefit them when they “trade up” at a later stage.

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Talking of incomers, I have yet to see any evidence of a retrenchment in demand from other EU citizens, despite Brexit. Although still largely concentrated in the rental market, those more committed to permanent residence in the UK are now starting aim for owner-occupation.

An even more recent factor than demand from EU immigrants is a tax-driven change in tactics by buy-to-let investors, who previously wouldn’t have considered anywhere but the New Town because of its unsurpassed rental income and capital growth but are now seeking to diversify by eschewing one expensive property for several cheaper ones.

Though not unique to Edinburgh, the “bank of mum and dad” is almost certainly a relatively bigger driver of first-time buyer affordability than most other parts of Scotland. With its history of legal and financial services, the capital has a particularly high proportion of couples in late middle age with substantial assets – a valuable main residence, pension pot, cash and shares – which make it easier for them to help their offspring get on the housing ladder.

• READ MORE: Land and building tax revenue in Scotland plummets by 31%

However, this is not just driven by parental affection; with the long-term freeze on the threshold for inheritance tax (effectively a reduction), helping sons and daughters with housing costs is one way of beating this hated tax – hated because it follows people beyond the grave (after a lifetime of paying taxes, even into retirement).

The current boom in demand for entry level and second entry level properties in Edinburgh surely has a lesson for the Scottish Government: just as reasonable levels of LBTT help incentivise sales so unreasonable levels tend to be a disincentive.

I have no problem with LBTT being “progressive” but more realism about the higher rates should mean greater activity at the top end of the market – and eventually lead to the Government achieving its target income from this source.

• David Alexander is managing director of DJ Alexander

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