Oil City’s Property Slump Exposes a Jaded Britain
First it was the collapsing oil price. Now it's Britain's quest to leave the European Union. There's little respite for the country’s worst-performing property market.
Home prices in Aberdeen, Britain’s oil hub on Scotland’s northeast coast, have fallen more than 10 percent over the past three years as the North Sea energy industry slumped. Now it’s the political backdrop of Brexit and a renewed push by Scotland’s nationalists for independence that’s taking its toll. Values slid 4.3 percent in May from a year earlier, according to data company Hometrack, making Aberdeen the only major U.K. city to record a decline.
“People are looking for some sort of stability and normality in the local area,” said Alan Cumming, estate agency director at law firm Aberdein Considine. “People in the northeast don’t want anything else that might cause uncertainty.”
Called the “Granite City” because of its gray architecture, Aberdeen has endured a dramatic change of fortune as the oil industry cut thousands of jobs. As recently as three years ago they helped push house prices to almost 50 percent above the Scottish average, according to broker Savills Plc.
The city of 200,000 also encapsulates Scotland’s desire to retain the status quo. Bang in line with the rest of the nation, it voted to remain in the U.K. in a 2014 independence referendum and also to stay in the EU last year. With Brexit talks underway after an inconclusive election last month, buyers are still staying away from the upper end of the market.
For Meg Christie, 64, oil and politics go hand in hand in jeopardizing a market that’s emerging for a “tough” few years. Her three-bedroom house in the upmarket west end of Aberdeen was on the market since April and the offer price of 390,000 pounds was about 16 percent less than its valuation from two years ago. She ended up agreeing to sell it this month for 375,000 pounds, albeit still for a profit after paying about 160,000 pounds for it 30 years ago.
“Because of the market, I decided to cut and run,” Christie said. “It’s a sign of the times really that you have to go below valuation to get it away, which has never been known before.” It would have gone “in a heartbeat” before the oil slump, she said.
Savills sees signs that the worst might be over. Oil companies are slowly hiring again. But a handful of boarded-up stores in the main commercial street point to the city’s troubles.
Crude oil has slumped from more than $100 a barrel before the 2014 independence vote to less than $50 now. Since then, Scots have cast their ballots another five times, including two U.K. general elections and the Brexit plebiscite.
“Politics and the oil are the things that will change the market significantly,” said Christie. “We’ve got Brexit going on and you just don’t know what the impact of that will be really.”
The Scottish government in Edinburgh has warned that a Brexit deal that cuts the country off from the European single market would cost the country about 11 billion pounds a year, equivalent to about 7 percent of output for an economy that’s been lagging behind the rest of the U.K. There was some respite in a report on July 5 that showed gross domestic product rose by 0.8 percent in the first quarter, meaning Scotland avoided a recession.
Voters, though, were also driven by concern about the prospect of another independence campaign. Conservative Prime Minister Theresa May lost her majority on June 8, but the political dynamic was different in Scotland.
The vote split people over the prospect of a repeat independence vote, and northeast Scotland played its part in dealing a blow to the Scottish Nationalist Party, whose flagship policy is to break away from the rest of the U.K. The only district of seven in the region held by the SNP was Aberdeen North. The rest turned to the Conservatives.
The SNP remained by far the largest party in Scotland, though it lost more than a third of its lawmakers in the U.K. Parliament. Leader Nicola Sturgeon said her plans for another referendum tied to the outcome of Brexit talks had played its part. She since has revised her timetable.
For the U.K. as a whole, any sense of stability may prove elusive for now. Labour Party leader Jeremy Corbyn told Bloomberg News on July 6 that he expects May’s government to unravel. It’s being propped up by an arrangement with Northern Ireland’s Democratic Unionists. The government is already facing opposition from rival lawmakers on crucial parts of its Brexit plan.
That said, realtors are optimistic for Aberdeen even if there's still an oversupply of homes on the market. Oil, rather than politics, is likely to be the main driver, said Faisal Choudhry, head of residential research in Scotland for Savills.
“Anecdotal evidence suggests the market is improving,” he said. “But from a statistical point of view, we are yet to see a recovery.”