City focus series: Glasgow

City focus series:
Glasgow
CITY FOCUS
Glasgow
City focus series
View from the
Streets with
Michael Luck
Managing Director,
Slater Hogg and Howison
he recovery in the Glasgow
housing market is rooted in the
return of the first time buyer and
the confidence they bring to the rest of the
market. A lack of market activity over the
last five years meant that purchases which
weren’t essential were postponed, as confidence in the housing market evaporated.
The early part of 2014 has seen this confidence return as new buyers appeared,
driven by an improving city economy and
mortgage finance.
T
Change in number of sales
(Q1 2013 – Q1 2014)
75%+ rise in agreed sales
Source: Countrywide plc 2014
50% to 75% rise in agreed sales
25% to 50% rise in agreed sales
0% to 25% rise in agreed sales
Fall in agreed sales
The Scottish Help to Buy Equity Loan
scheme which launched in September 2013,
six months after its English counterpart,
has added to this growing sense of confidence. In the first three months, the scheme
accounted for 1 in 12 sales of new property.
Although this is less than in England, the
scheme has been well received with 109
house builders signed up to it. It is being
actively used by house builders, with 1 in 4
new properties for sale in Glasgow under
£400,000 (the price cap of the scheme in
Scotland) available through the scheme.
Scotland’s and Glasgow’s recovering economies and the creation of new jobs has
been reflected in the rental market, which
reacts quickly to changes in local economic and market conditions. The strong
performance of highly skilled employment
markets, financial services in particular,
has meant that demand exists in particular
for high quality rental property. In the first
quarter of 2014, half of moves in the rented
sector were because of new or changing
employment, up from a third in 2013. In the
medium term, the supply of private rented
sector stock will be boosted by the Commonwealth Games through the construction of a number of build to rent schemes.
While international sporting events are
often seen as opportunities to rent properties to tourists, it is unlikely the games will
have a significant impact on the number
of available rental properties. The volatile
nature of the market for tourist lets during
the Games means there is little evidence of
landlords keeping properties empty.
The forthcoming question of Scottish
independence has never been far from
the minds of buyers, however for the vast
majority it hasn’t been a material consideration in their decision whether to purchase.
In comparison to Edinburgh and Aberdeen,
demand in Glasgow primarily originates
from the city itself meaning uncertainty
generated by the forthcoming referendum
has been limited. Given the recovery has
been driven by first time buyers and home
movers, it is local factors rather than the
question of independence, which forms the
basis of a decision to purchase property.
Central and Western areas of
Glasgow in particular have seen
the largest uplift in transactions
over the last 12 months driven by
rising confidence in the city and a
number of regeneration projects
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CITY FOCUS
Glasgow
City focus series
A bottom up
– top down
recovery
The sub £125,000 market has been
driven by a 30% increase in the number
of first time buyers purchasing which has
helped homeowners, first time sellers in
particular, to move up the chain. Over
time new mortgage finance will trickle upwards to second and third time
sellers who comprise the majority of the
£125,000 - £500,000 market. The prime
£500,000+ market is much less reliant
on the availability of mortgage finance.
The uplift in the number of new sellers is
a reflection of an improving economic situation and associated job creation. Scottish government data shows the number
£500k+
£250k to £500k
£125k to £250k
6%
Under £125k
Twelve month
change in the
number of
properties for sale
The number of homes available for sale
fell 12% year-on-year as the number of
homes for sale grew more slowly than the
number of buyers. This has put sellers in a
strong position; the number of properties
on the market which have had their asking
price reduced has fallen from 18% to 5%
over the last 12 months, the lowest level
for five years. In a reversal of the 2007
downturn where the number of first time
buyers and sales of £1m homes fell most
quickly, the recovery has been led by the
top and bottom on the market: properties
under £125,000 and over £500,000.
2%
3%
3%
0%
of the most highly skilled jobs grew 30%
between 2011 and 2013, twice the rate of
growth seen across the city as a whole.
The recovery in the Glasgow housing
market over the last 6 months, has been
driven primarily by ‘essential purchases’ made by first time movers following
five years of low transaction levels. This
lack of mobility in the housing market is
reflected by the average period of time
a home owner lives in their property.
In 2006, the average homeowner in
Glasgow moved once every six and a half
years, roughly in line with the Scottish average. By 2013, they moved on average
just once every 14 years. In parts of the
East End where the number of sales has
continued to fall, this figure has reached
18 years. As families grow, children leave
home and jobs change, what households
require from their property changes. Five
years of a stifled housing market with
the number of sales running at barely
half 2000 – 2006 levels means there
have been 8,700 fewer sales annually in
comparison to the long term average. A
significant number of those households
which have stayed put and made do, are
now starting to get itchy feet.
-3%
Profile of purchasers in Glasgow
-6%
In the first quarter of 2014 first time buyers
accounted for 1 in 3 house sales in Glasgow, up from just a quarter at their lowest
point in 2010. 93% of new buyers paid
less than £125,000 for their property.
-15%
Source: Countrywide plc 2014
-12%
-14%
-13%
-9%
These are buyers who primarily originate
from Glasgow and have strong social and
economic ties to the city. Despite being the
largest city in Scotland, the vast majority of
first time buyers come from the city itself.
Three quarters of new buyers come from
Glasgow, compared to just half in Edinburgh.
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7%
20%
2014
40%
33%
Source: Countrywide plc 2014
Mortgage: Buy to Let
Mortgage: First time buyer
Mortgage: Home mover
Cash
CITY FOCUS
Glasgow
City focus series
The Commonwealth question
The Athletes Village for the 2014
Commonwealth Games is being
built in Dalmarnock, the middle of
Glasgow’s East End. Historically, the
area had been the focus of Glasgow’s
heavy industry and as a result was
heavily bombed during the Second
World War. During the 1980s much
of the industry moved out leaving
behind the largest concentration of
derelict land in Scotland. After the
Games the Athletes Village will provide 700 new homes, around half of
which will be available to rent either
privately or socially. In total 10,000
new homes will be built over the next
15 years as the regeneration of the
area takes shape.
The Commonwealth Games, in similar fashion to other large sporting
events, offer the opportunity for
home owners and landlords to rent
out their property given the additional demand for short term, high
quality accommodation. Asking rents
vary significantly, but achieved rents
are in the region of £2,000 - £2,500
per week for a very well finished
2/3 bedroom property – around six
times the amount a tenant could ex-
pect to pay to rent the property on a
long term basis. Despite a hefty mark
up, the achievable premium isn’t
large enough for landlords to leave
their property untenanted for a substantial period of time in the hope of
finding a tenant. As a consequence,
there has been no impact on the
supply of available properties to rent.
Stories of landlords serving notice
on long term tenants to make way
for high paying visitors are based
on little substance. In April 2014,
Countrywide plc saw the average
tenancy length hit a two year high of
16 and a half months, hardly a sign
of landlords looking to cash in.
In reality the market for Commonwealth Games lets is separate from
the mainstream rental market, and
as a consequence there has been
no impact on the levels of available
stock. Demand is too volatile and
tenancies too short term for landlords to get involved on a significant
scale. Supply has predominantly
come from homeowners advertising
their own properties either privately
or through an agency. Homeowners
looking to rent out their primary
residence comprise around 85% of
advertised Games lets. The remaining 15% are properties which are
between tenancies and serviced
apartments. Given domestic homeowners have the choice whether to
vacate their property and make alternative living arrangements asking
rents tend to be set optimistically.
The result is that the tenant has to
pay a price to make it worthwhile
for the owner to move out – the
rent is a reflection of the disruption
of moving faced by the owner.
Inevitably, there is a degree of speculation surrounding large sporting
events and the Commonwealth
Games in Glasgow is no different.
Research by Hamptons International
shows however that average rents
in the London Olympic host boroughs remained virtually unchanged
in the run up to the Games despite
a media frenzy surrounding short
lets. Opportunities do exist however
for homeowners who do choose to
price realistically, are able to offer
high quality accommodation in
good locations and can market their
property to the right audience.
TO LET
TO LET
TO LET
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CITY FOCUS
Glasgow
City focus series
The recovery is putting sellers in a stronger position
12 month change in number
of properties on the market
1
5%
+
-
The number of properties
on the market in Glasgow
fell 12% over the last 12
months, a trend which
has been most evident
in more expensive areas.
Cash and first time buyers
– those without properties
to sell, outnumber home
movers by 2:1
18%
Central
North
South
-16%
-26%
-13%
-24%
-29%
East
West
-18%
-15%
Change in number
of properties for sale
Change in number
of properties for rent
-22%
Source: Countrywide plc 2014
12 month house
price change
2
Proportion of properties in Glasgow which
have had their asking price reduced
Aberdeen
+15%
30%
Dundee
+2%
Stiring
-4%
25%
20%
Glasgow
+5%
Edinburgh
+5%
15%
10%
Average house prices
grew 4.8% over the last
12 months in Glasgow,
above the 3.5% average
increase in Scotland. Rising prices have put sellers
in a stronger position with
the proportion of properties which have had their
asking price reduced
falling from 18% to 5%
over the last 12 months.
Jan - 14
Jul - 13
Oct - 13
Apr - 13
Jan - 13
Oct - 12
Jul - 12
Jan - 12
0%
Apr - 12
5%
Source: RoS 2014
Social and private house
building in Glasgow
3
Source: Countrywide plc 2014
Private
Social
5000
4000
3500
Over the same timescale
the number of social units
built jumped 18% - despite the recession. Much
of this is closely linked
to regeneration. While a
large number of units have
been built, many have also
been demolished as areas
are regenerated.
3000
2500
2000
Private house building
down 70% compared
to previous 5 years
1500
1000
0
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
Number of properties built
4500
The economic downturn
had the effect of substantially reducing the
number of private houses built. The average
number of properties
built in the five years after
2008 was 70% lower
than in the five years
preceding 2007.
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Source: Scottish Government 2014
CITY FOCUS
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