Prospects for longer term recovery in Aberdeen are good, but residential prices must adjust according to Savills

23 November 2016

Latest research from residential property specialists Savills reveals the impact of Aberdeen’s oil-shock has resulted in a 24% fall in sales over a two-year period. The research findings were launched at a conference attended by 200 property specialists from across the North East of Scotland.  They heard that while house prices had risen by 11% in just one year, between 2013 and 2014 at the peak of the market, they had since dropped by 7% and a further 8.5% was anticipated by end of 2018, before a gentle recovery would take place, in line with the rest of Scotland.

According to Savills, such an adjustment would reduce the high level of stock on the market and align values with buyer expectations, so beginning a recovery over the medium-term. 

Faisal Choudhry, Savills Head of Residential Research in Scotland said: “Aberdeen has benefited from the warm glow of the oil market. By the middle of 2014, Aberdeen’s average values increased to just over £200k, which was 48% above the Scottish average. The market is now feeling the chill of the oil market downturn.”

The annual number of house sales across the Aberdeen area dropped by 24%, from 11,253 during the year ending September 2014 to 8,577 during the year ending September 2016. Prime second hand sales (above £400,000) fell by 51%, from 663 during the year ending September 2014 to 322 during the year ending September 2016, as LBTT charges further suppressed the market for high value homes.

At the top end of the market, above £1 million, the number of transactions fell from 29 during the year ending September 2014 to eight during the year ending September 2016.

Choudhry said:  “Providing house prices adjust in the short term to realign them to buyer expectations, the prospects for the medium to long-term recovery are good. The Aberdeen market will continue to be underpinned by high quality housing, top-performing schools and universities, good local amenities, improving infrastructure and an increasingly diversified local economy, which is not solely dependent on oil.”

Fiona Gormley, Savills Head of Residential Property in Aberdeen said: “Those who need to sell relatively quickly may wish to consider setting significantly reduced asking prices. This is especially for sellers who, like many property owners in Aberdeen, have large levels of equity in their current homes. Others may wish to take a medium to long-term view with regard to buying and selling while Aberdeen’s local economy rebalances.

“With the glut of stock on the market, and increased rates of Land and Buildings Transaction Tax (LBTT) impacting prime sales, it is more important than ever for home owners to take a proactive approach and to make informed decisions.

“The real challenge at the heart of the local property market slump is the lack of transactional activity and the high number of unsold properties. The economic law of supply and demand dictates that prices are simply too high and out of step with what the market will pay.

“The lack of adjustment in pricing, coupled with a continually decreasing number of transactions, is leading to an ever-growing glut of properties that are currently available to buy in the Aberdeen area.”

The number of available second hand residential properties has jumped from 2,360 at the beginning of 2015 to 4,583 as of November 2016, an increase of 94%. The lion’s share is in price bands up to £400,000 and includes many buy-to-let properties which have been impacted by an annual drop of 17% in monthly average rents.

The lack of movement in the market below £400,000 has led to a reduction in those able to upsize to homes above this level.  The higher end of the market is being further impacted by the lack of buyers relocating to the Aberdeen area to work in the energy sector. Yet, according to Savills, house prices have only fallen by 7% since 2014, with little adjustment being made for properties that are struggling to sell.

Fiona Gormley said:  “While exceptional properties continue to attract buyers, in general there is now an imbalance between supply and demand.

“The prime Scottish market has experienced its own, well-documented downturn from 2007 until 2013. It was only when prices were appropriately adjusted to their pre-peak levels, that the equilibrium between supply and demand began to be restored and the market was able to start its recovery. There are certainly lessons for Aberdeen to learn from this. 

“Oil has been the vital aspect of Aberdeen’s economy for a relatively short period of time. The restructure that is currently taking place within the sector is likely to result in a far more efficient, and sustainable industry. House price inflation in Aberdeen requires a similar readjustment to ensure a sustainable market that is supported not only by oil but by a more broadly based economy. This means that pricing needs now to adjust to a pre-peak norm.”

New build market

According to Savills research, the new build market in Aberdeen is already adjusting to current conditions, with price reductions and incentives being offered at a number of developments. This has resulted in developments maintaining rates of sale, albeit at relatively lower levels.  Encouragingly, there is strong housebuilder appetite for strategic land, and there is medium to long-term confidence in the Aberdeen area.

Elsewhere in Scotland

Overall house price growth has been lifted by strong performance across commuter and suburban locations around Edinburgh and Glasgow. However, Scottish average prices are being suppressed by higher rates of Land and Buildings Transaction Tax (LBTT) impacting sales above £400,000 and the slowdown in the Aberdeen area market. 

Interestingly, the number of overall residential sales in neighbouring Angus and Moray increased annually by 6% and 3% respectively by the end of September 2016. In terms of pricing, Angus saw price growth averaging 1% in the 12 months to the end of September, and in Moray the average increased by 5%.

 
 

General Enquiries

Savills Edinburgh

 

Key Contacts

Beth Hocking

Beth Hocking

PR Manager
Press Office

Savills Edinburgh

+44 (0) 131 247 3739

 

Faisal Choudhry

Faisal Choudhry

Director, Scottish Research
Residential Research

Savills Glasgow

+44 (0) 141 222 5880