Despite their elegance, the Georgian terraces of Edinburgh’s New Town and the Victorian mansions of its suburbs have not traditionally drawn interest from overseas. The prime market of Scotland’s capital has, until recently, been the preserve of Scottish bankers, entrepreneurs and other high-net-worth locals. However, soaring prices in central London (prices in Knightsbridge have grown by 50 per cent in three years) have, according to local agents, prompted increased interest from foreign buyers looking for a British education for their children, and from British buyers not tied to the southeast – and who are undeterred by the uncertainty over Scotland’s constitutional future as it awaits a 2014 referendum on independence from the UK.
The property market in Edinburgh has had a tough few years. The impact of the downturn north of the English border was exacerbated by the collapse in 2008 of the city’s two major banks, HBOS and RBS, and the subsequent exodus of financiers. Sellers stopped looking at offers subject to sale and mortgage finance ground to a halt. In 2008 prices fell by 10 per cent.
Today prime property prices are 19 per cent below their 2008 peak and the widening gap between property prices in Edinburgh and London, it seems, is fuelling renewed interest from buyers outside Scotland. Savills registered a rise of 24 per cent in prime transactions (from about £700,000 to £3m) during the first half of the year compared with the same period in 2011.
The contrast with prices in London is remarkable. There, prime property can cost up to £6,000 per sq ft, where top-end property in Edinburgh comes in at around £350 per sq ft.
“Rarely, if ever, has there been a bigger gap between values in prime London and prime Scotland,” says Faisal Choudhry, Savills’ head of research in Scotland.
Two years ago, foreign buyers accounted for just 7 per cent of the Edinburgh market over £1m. Now, according to Knight Frank, it is closer to 10 per cent and a quarter of buyers with Savills are now from outside Scotland (twice the figure in 2011).
Last year Rettie & Co sold a family house for more than £2m to a Russian buyer who, according to director James Whitson, “said his friends had told him to look here instead of London because it was cheaper”. Knight Frank also sold three properties for between £2m and £2.7m to Russian buyers at the beginning of the year, and has seen interest from China, Singapore and the US.
Edinburgh has much to recommend it as an alternative to London. Despite job losses caused by the banking crisis it is still the city with the strongest local economy in the UK after London. And RBS and the Lloyds Banking Group remain two of its major employers. Transport is more manageable than in London (although long-time residents complain bitterly about the inner city’s one-way system), and next year Edinburgh will have a direct tram link from the city centre to the airport. There are cultural attractions too, chief among them the Edinburgh Festival and Fringe that runs throughout August every year.
Families are drawn by the local independent schools, including Fettes College, which is where former prime minister Tony Blair was educated and where foreign nationals and expatriates account for 25 per cent of the school roll. Loretto and George Heriot’s have also seen increases in pupil numbers over the past five years.
Architecturally, most people associate Edinburgh with the neoclassical town houses built during the late 18th and 19th centuries. Strutt & Parker and Savills are selling an 8,700 sq ft 10-bedroom house on Rothesay Terrace, a short walk from the shops on George Street and 20 minutes from Fettes, with a guide price of £2.25m.
In Bruntsfield, about a mile southwest of the centre, Savills is selling a five-bedroom townhouse for £685,000 on Leamington Terrace. Further southwest is the conservation area of Colinton, where Merchiston Castle boys’ school sits in the grounds of a castle destroyed by Oliver Cromwell.
This kind of historical context can be a bonus for international buyers, says Whitson, who has recently brought to the market a 16,000 sq ft property called Beechmount House in Murrayfield, a few miles west of the city centre. Beechmount House was built in 1900 for the then treasurer of the Bank of Scotland and is currently used as a private residence with apartments in a rear extension rented out. It comes with eight acres, a coach house and planning consent for use as a hotel. There is no guide price but Whitson expects Beechmount to sell for about £4m. This kind of super-prime property is extremely rare in Edinburgh – just three residences have sold for more than £3m since 2009.
There is some concern about whether the constitutional question will affect prices, and whether the progressive tax scheme proposed instead of stamp duty by the Scottish government, who will take charge of property taxes in 2015, will discourage wealthy buyers. The scheme would levy tax at levels more closely linked to the value of the property. According to the Scottish Government Consultation, buyers of homes worth £2.5m who currently pay £175,000 in stamp duty would have to pay £199,000.
But if anything, says Whitson, this could encourage people to buy now. “Uncertainty is obviously not good for the market and it has made some people uneasy. But people who want specifically to buy in Edinburgh are not going to be put off in the same way as buyers might be in the Borders. It’s a unique city that at the moment is just very good value.”
● Scottish property transactions often involve secret sealed-bids between rival buyers
● The much-delayed tram project is due for completion by summer 2014, at a cost of £776m
● It isn’t the warmest city. The average annual temperature is 8.5C
● In 2015, a progressive tax system may be introduced that results in higher rates for prime home buyers.
● Crime figures for Edinburgh fell by about 5 per cent in 2011/12, from 38,218 to 36,202
What you can buy for ...
£500,000 A three-bedroom flat in a Victorian crescent in the New Town
£1m A small four-bedroom house in the centre or a six-bedroom house in Colinton a few miles out