Why Scotland is Looking Bonnie for Property Investment

09.11.16

Scotland is strutting her stuff at present and for good reason. The country has been ranked as ‘the most attractive place to invest’ in the UK outside of London by Ernst and Young for the sixth year running, thanks to a ‘truly spectacular year’ for foreign direct investment; with the number of investment projects rising this past year by 51% – compared to 20% for the UK as a whole – helping to create more than 5000 jobs.

Scotland's hip-swinging First Minister Nicola Sturgeon says her belief Scotland will become independent is stronger than ever – if the Tories push for a “hard Brexit”. She told the party conference in Glasgow last month that it was a matter of how independence is secured, and not when.

One of the reasons that Scotland is punching well above its weight in terms of attracting investment is, like it or not, because it’s an extremely competitive place to do business. Scotland's Small Business Bonus Scheme, introduced in 2008, has already saved small businesses in Scotland £1bn and registered businesses in Scotland are at an all-time high.

The country has a highly competitive rates regime, and the small business bonus scheme continues to deliver rates reductions to 100,000 business premises across the country. Scotland has also retained its Enterprise Agencies, who work with thousands of companies each year to attract investment, create jobs and provide vital assistance to firms on export markets, innovation and access to finance. The Scottish Investment Bank (SIB) meanwhile, investing with private sector partners on a co-investment model, provides early-stage equity to high-growth innovative companies. This joint public/private sector partnership has helped increase the number of active business angel syndicates as well as deal activity in Scotland, and as a consequence, the country now has one of the most active business angel communities in the world.

So what does all this mean for property investment?

There’s little doubt that the relatively high yields that can be gained in Scotland remain attractive to investors less worried about constitutional debate. JLL confirms that foreign investment accounted for 59% of the market in Edinburgh and Glasgow last year, higher than in any other area of the UK except for central London’s 65%.

Leading developer Scarborough Group, has reported a ‘great year’ with a recent hosting of one major Chinese developer confirming that they are pressing ahead with a 40,000 square foot office building at Buchanan Gate on the edge of Glasgow.

Latest figures confirm that 9 of the 10 most popular postcodes in the UK are either in the North or in Scotland, with most investors in Scotland enjoying returns well above the national average – in Glasgow, a 4-bedroom house generates a gross yield of around 5%, which is higher than other university cities, such as Oxford, Cambridge and even London.

Scottish university cities are also currently offering fantastic returns for UK landlords. Many Scottish universities are now internationally renowned, with thriving undergraduate and graduate environments. This means demand for rental accommodation in university areas is very high, as throngs of students compete to live near their campuses. Combined with Scottish house prices still remaining relatively low, this equates to excellent yields.

As to what properties are particularly desirable? Flats are proving to be most popular, up 4.7% to an average price of £133,790 on the previous year. Semi-detached properties have also increased by 1.8%. Flats too have shown the biggest increase in terms of volumes of sales, at 6.9%.

They are of course, highly appealing to young professionals who are seeking accommodation in the heart of the city. Likewise, semi-detached houses and terraces are perennially popular with investors; due to the often-flexible nature of the internal layout, offering redevelopment potential to suit student renters.

Of course, elevated property prices are only worth investing in if the right rental yield can be produced in return. Thankfully, the Scottish rental market is also booming, leaving investors with plenty to smile about.

Edinburgh is currently experiencing the second highest growth in rent of any UK city. Landlords are enjoying earnings that are 20% higher than the national average, and this looks set to continue. Average rental yield is now £942 pcm, and things are anticipated to get even better, with a predicted population increase of 8% by 2020 and a predicted GPD growth of 30% in the next decade.

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