Blog: Is Aberdeen’s property slump a portent for London?
Dominic Selica is an account executive at Blueclaw Media.
Whether you are a buy-to-let landlord or a private residential owner, you may well feel as though there is a pressing need to sell your house in the current climate.
After all, not only is the government clamping down on tax benefits for private landlords, but we are also on the brink of another global recession and the withdrawal of the UK from Europe. With both situations likely to cause the pound to crash and the property bubble to burst, now would seem to be the best time to sell if you are thinking of doing so.
Most recently, we have witnessed the collapse of Scotland’s very own property boom town: Aberdeen. Home to the companies and workers that drive the North Sea oil sector, it has seen a housing market reversal after almost seven years of rapid and continued growth.
After seven years of relentless growth, the value of Aberdeen homes slumped by 4.1 per cent throughout 2015.
This is a significant drop, especially when you consider that The Times reported annual house price inflation of 14.4 per cent at the end of 2014 (which at the time was nearly double the UK average). According to Hometrack, the average price of property in Aberdeen has fallen to £186,200 – well below the overall average for the whole of Great Britain at £300,000.
This represents quite a decline, especially for a location that up until recently was renowned as the energy capital of Europe. The truth is that this decline has been inspired by the same factors which triggered the exponential growth in the first instance, as an 18-month decline in the price of Crude oil has ravaged the industry as a whole and caused an estimated 10,000 job losses. This has hit Aberdeen harder than most regions, with more than 40,000 residents previously employed in the oil and gas sector.
At the peak of its growth, Aberdeen boasted more millionaires per 100,000 residents than London, which underlines just how far the town has fallen in the last two years. To make matters worse it is now officially ranked as the least attractive location for property investors with a score of -40. It’s not all bad for Scotland though, as the winner with a score of +24 is Edinburgh.
While there are few similarities now between Aberdeen and London, is there the possibility that the English Capital could follow the same fate? After all, housing markets are only as buoyant as their local economies, and central hubs such as prime regions in central London could be hardest hit in the event of a collapse brought about by a sharp decline in the Pound’s value and foreign investment following a very likely ‘Brexit’.
Prices in London rose by 13 per cent last year, amid increased international investment and demand. Values in areas such as Chelsea began to stagnate at the end of 2015, however, and there are concerns that a recession could cause the bubble to burst in the capital. Given the size of London and the level of inflated growth that has defined the market during the last 18 months, and economic collapse could cause values to plummet and leave thousands in significant debt.
Almost immediately, you can see the similarities between Aberdeen and London and the portents for the capital. While the former towns’ decline was triggered by the decline of a specific industry, London could be even harder hit by a widespread economic collapse in 2016.