Tuesday, 5 February 2019

The question of the day is …. do you buy or sell in the Edinburgh property market?

I have one of my landlords from Trinity ring me for my advice the other day.  He had been speaking to a couple of friends of his about the Edinburgh property market and they had very different views on whether it was time to either sell or buy property – one though that you should by, the other thought that you should sell and the third thought that you should do nothing!  If you read the newspapers and the landlord forums on the internet, there is a good slice of doom and gloom, especially with Brexit, the general uncertainty in the world economic situation, changes in the taxation towards landlords, the increasing legislation affecting the sector etc. 

I would admit, there are certain landlords in Edinburgh who have over exposed themselves in the last few years with high percentage loan to value mortgages. Those mortgages, with their current (yet artificially) low interest rates, will start to suffer, as their modest monthly positive cash flow/profit (ie income (rent) less costs (mortgage, fees, tax)) will become negative when the tax and mortgage rates rise.

It appears to me these landlords seem to have treated the Edinburgh Buy to Let market as a sure bet and have not approached this as a business and, as a result, they will suffer as they thought "Buy a house - rent it out so it covers the mortgage and make a few quid on top".  These are the people who will be thinking twice. I see opportunity everywhere and won't be stopping, I am here to stay. It’s going to be an exciting year.

Gone are the days when you could buy any old house in Edinburgh and it would make money.  Yes, in the past, anything in Edinburgh that had four walls and a roof would make you money because since WW2, property prices doubled every seven years … it was like printing money – but not anymore.

True, since September 1998, the average price paid for an Edinburgh flat has risen from £64,755 to today’s current average of £220,584 in the town, an impressive rise of 240.64% and semi-detached houses have risen in the same time frame, from £92,371 to £342,615, an even better rise of 270.9%. 

However, look back to 2008, and in that year, the average flat was selling for £147,125 meaning our Edinburgh landlord would have seen a 49.9% rise and the semi-detached house owner would have seen an increase of 37.1% as they were selling for on average £246,684 .... not bad until you consider inflation.

Since 2008, inflation, ie the cost of living, has increased by 32%. That means to retain its value, a Edinburgh flat bought for £147,125 in 2008 would need to be worth £194,205 today to counter the impact of inflation. Therefore, our flat landlord has only seen an increase of 17.9% (ie 49.9% less 32% inflation) over these 10 years ie 1.79% per annum.

The reality is that in the period since around 2008 we haven’t seen anything like the average capital growth in property we have seen in the past largely as a result of the ongoing effects of the economic crash in 2008 and it’s not predicted to grow at the rates it has previously done either. So it is high time anyone considering investing in property stopped believing the hype and did some serious research using independent investment expertise.  You can still make money by buying the right Edinburgh property at the right price and finding the right tenant. However, remember, investing in Edinburgh property is not only about capital growth, but also about the yield (the return from the rent). It’s also about having a balanced property portfolio that will match what you want from your investment – and what is a ‘balanced property portfolio’?

If you would like to talk to me about your balanced property portfolio, please call me on 0131 603 4570 or email me at robert@thekeyplace.co.uk.

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