However, there are some areas that are doing well, according to the annual Scottish Property Briefing report from Strutt & Parker. It says that the luxury new build market has definitely taken off in central Edinburgh and the firm forecasts continuing growth in this area.
It also predicts a 4% to 5% growth in the £400,000 to £1 million mature markets, although selling properties over this price will continue to be challenging and there is likely to be 0% growth in this area.
Last year there were 66 house sales of over £1 million in Edinburgh, which represented almost half of all Scottish properties in this range, of which Strutt & Parker sold almost 20% including one house at almost £4 million which is one of the Scottish capital's most expensive sales in recent years.
According to Blair Stewart, who heads up the firm’s Edinburgh residential department, despite the new Land and Buildings Transaction Tax and continuing political uncertainty there are still many people willing to invest and live in the city.
In the Country House market over the last year there has been a 27% increase in prime market transactions of £400,000 and over. Areas that have performed well have been those within commuting distance to Edinburgh, with a 50% increase in transaction numbers in Fife, a 69% increase in the Borders and an 85% increase in Midlothian.
‘The legacy of the Referendum continues to affect the prime country house market with continued uncertainty. Land and Buildings Transaction Tax will cause the top and middle of the prime market to readjust and capital values are expected to reduce by 2% to 4%,’ said Malcolm Leslie.
‘It is also expected that some would be buyers will make the most of their existing home by extending or renovating rather than moving home and incurring the increased tax. The quality of life that a Scottish country house can offer, together with the increasing value gap between southern England and rural Scotland, will encourage inward investment,’ he explained.
‘Finally I predicted that with the stability in the macro economic situation, the long term prospects for growth in the prime country house market look good,’ he added.
There are two major factors affecting property prices in the UK, according to Stephanie McMahon, head of Strutt & Parker's research team. ‘Emerging countries with weak institutions has led to a flight of money from these markets to places such as the UK that has, for example, very strong property rights,’ she said.
‘Secondly, the population growth and rise in single person households leads to demand outstripping supply. However, the country as a whole is affected differently. Prices in London have risen by 35% since 2007, yet in Scotland it has fallen by 7%,’ she added.
She pointed out that investors and institutions buy residential property because the rental market is booming and in Scotland the number of people renting property more than doubled between 2001 and 2011.
Indeed, Edinburgh has 27% of the population living in rented houses and flats and it is predicted that Edinburgh will see a 30% increase in its population by 2037 which will lead to 39% more households. ‘It is obvious that this will lead to increased price pressure in the Scottish capital,’ said McMahon.
When it comes to estate and farms, Robert McCulloch said that the sale of Scottish estates last year experienced a 56% drop from the amount sold in 2013, from 16 to just seven in 2014.
The overall sum of money spent has gone from £71 million to under £34 million in the course of the year, a drop of 53%. He pointed out that the independence referendum caused widespread concern for nearly three quarters of the year, and the lack of bounce following the No vote is most likely caused by the Scottish Government's Land Reform agenda.
‘It is my view is that the practical impact on estate owners is likely to be fairly minimal but that many prospective buyers have automatically assumed the worst and have chosen to stay out of the market until the picture is clearer,’ he explained.
‘There is a perception that LBTT will significantly increase the cost of buying an estate or farm. However, in reality, estate and farm sales will be treated as non-residential property with the LBTT payable fixed at 4.5% for the part of the price lying over £350,000. Compared to the current Stamp Duty rate of 4% for sales over £1 million, it is hardly an excessive increase,’ he added.
The farm market also saw a drop in sales last year, from 62 the previous year to 47, representing a reduction of 24%. According to McCulloch the key factors influencing the market are, firstly, CAP Reform which is proving difficult to implement and muddled in its delivery.
Secondly the input costs and product prices which have both come down in price meaning farmers are no better off in real terms over the course of a year and the funding of any debt to buy additional land remains difficult.
‘However, the opportunity for many farmers from England and overseas to double or treble their acreage with a farm purchase in Scotland is a powerful motivator and key factor in keeping this market afloat,’ he added.
