The £1 million Plus Market in Edinburgh and the Impact of the 2012 Budget

Rettie & Co have reviewed the performance of the £1 million plus residential market in Edinburgh in 2011. We were directly involved in selling one in three of these properties in 2011 and have tracked all other market sales in this bracket.

This updated review takes account of changes announced in yesterday's Budget by the Chancellor of the Exchequer.

Story of 2011

Edinburgh has the highest house prices of any local authority in Scotland: with the average house price over £225,000, 44% 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 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 has been relatively stable in recent years (see Figure 1, below). 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.

Performance of Rettie & Co

In 2011, Rettie & Co were involved in 1 in 3 of sales over £1 million in Edinburgh. This is more than any other agent (Figure 2).

Expectations for 2012 and beyond

We believe that this market will recover strongly in time, 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 is also benefiting 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. 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.

Impact of the 2012 Budget

Yesterday, the Chancellor of the Exchequer announced a rise from 5% to 7% in Stamp Duty on all properties sold for £2 million or more. To close the loophole on companies being used as purchasing vehicles in order to avoid Stamp Duty, Stamp Duty on these sales is now 15%. In addition, overseas companies that already own UK residential property worth more than £2 million will be subject to Capital Gains Tax from April 2013. In case some clever professional people were already thinking of ways around this, the Chancellor also threatened retrospective legislation for any future tax avoidance schemes. It therefore seems unlikely that 'super prime' residential property will be able to escape tax in the ways in which it has so skilfully done before.

It is worthwhile putting this change into some perspective. Less than 1% of all UK residential transactions are for properties over £2 million. There will be little detrimental effect on the Edinburgh property market, where there were only four house sales over £2 million in 2011 (3 of which were sold by Rettie & Co), or indeed the wider Scottish property market, where there were only around 10 such sales last year. Nevertheless, some impacts are already emerging and a property that Rettie & Co is selling on 28 Ann Street is being reduced in price to £1.95 million (picture below).

The changes will have a larger effect on the London and South East of England market, where four out of every five such sales happen in the UK. However, a possible favourable consequence for Edinburgh is that it may make property look more attractive here as virtually all super prime property in the city would avoid this additional tax. Prices have raced ahead in central London and supply is getting short, therefore potential buyers already had been considering other parts of the UK, and Edinburgh is as well regarded as any city outside London and the South East.

About Rettie & Co Sales Team

We have expert teams of professionals dedicated to the sale of privately owned residential and country property across Scotland. Our staff have in-depth knowledge of the local and national markets.

We offer all of our clients high quality, focused marketing campaigns, excellent service and superb value. As the leading Scottish independent estate agent, we sell significant volumes of town and country property in all of Scotland's regions.

Unlike many of our competitors, we are regulated by the Royal Institution of Chartered Surveyors (RICS). We abide by strict rules of professional conduct and client accounting procedures.

For further information, please contact:

Edinburgh: 0131 220 4160

Glasgow: 0141 248 4160

Glasgow West End: 0141 341 6000

Melrose: 01896 824 070

Alternatively, please email mail@rettie.co.uk.

About Rettie & Co Research

The Research and Consultancy Team at Rettie & Co can help you to understand what is happening and likely to happen in housing markets.

We offer advice that is robust, objective and based on not just analysis of these markets, but through engagement with our teams who work in these markets on a daily basis.

As well as housing, we can also offer similar analysis and advice on other property types, including office, industrial and retail. Combined, these services can provide a clear understanding of property markets and how they will be impacted by the overarching economic situation.

For further information on this article please contact

research@rettie.co.uk