The slump in the price of N. Sea crude oil has resulted in Aberdeen residential property sales falling by almost a quarter (24%) over the past two years.
In June 2014, the crude oil price hit a 13-year high of $100-barrel but slumped in a global over-production glut to around $30-barrel in December last year.This month, it is trading around $45-barrel.
The property sales slump was revealed by estate agency firm Savills, which also said that house prices in the city had since dropped by 7% two years ago, and a further fall of 8.5% was anticipated by end of 2018.
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 £200,000 – which was 48% above the Scottish average.
“But 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.
Sales of ‘prime’ second-hand property – with values above £400,000 – fell by more than half (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 for properties above £1 million, the number of transactions dived by more than 66% – from 29 during the year ending September 2014 to eight during the year ending September 2016.
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.
Fiona Gormley, Savills Head of Residential Property in Aberdeen added: “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.”
“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 of these are 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.
Overall house price growth in Scotland has been lifted by strong performance across commuter and suburban locations around Edinburgh and Glasgow.
However, Scottish average prices are being depressed by ‘Swinney’s house sales tax’ – the higher rates of Land and Buildings Transaction Tax imposed by SNP finance minister John Swinney in his last budget.