2015 is almost over....what will 2016 bring?
This year has been a challenging one on many levels for a large number of our clients especially those who are either employed in or in some way connected to the oil industry. Not only have private individuals faced redundancy situations but many who have been fortunate to retain their jobs have seen their terms and conditions dramatically altered. Local hotels have seen occupancy rates drop and many businesses which “spin off” from the oil industry have found themselves in precarious positions. Many “expensive” ex-pats have been sent home by their employers, up market restaurants are almost empty and some parts of the local economy have been experiencing almost “depression” like conditions.
So what will happen next? Although undoubtedly 2015 has been a hard year for many of Mackinnons’ clients, for those of us who have been in practice for a long time, this situation is not unique and will recall that when the oil price collapsed back in the 1990s, so too did your Europe’s oil and gas industry – at least for a time.
But there are already some “early green shoots” emerging – some of our clients are being re-employed, details of new contracts ahead for late 2016 and deals starting to be done again are all filtering through.
Although Aberdeen and Aberdeenshire have both seen an increase in unemployment levels in 2015, in this part of the country the level is still very low. Property prices remain high compared to the rest of Scotland and although the volume of sales has dipped, which probably indicates less confidence in the market with many people choosing to “sit tight” rather than expose their home for sale, this has been felt primarily in the upper price ranges. In the market for the flats there is still good activity and the level of borrowing remains low. Overall and given the difficulties which have been encountered in some areas of the economy, the local housing market is showing an increasing degree of resilience and it is hoped that, as it has done in past decades, this will continue to grow and develop in the months to come.
Our mid-high end property market has certainly been affected in 2015 by the Scottish Governments introduction of Land and Buildings Transaction Tax (LBTT) which makes the cost of purchasing a residential property in excess of approximately £350,000 considerably more expensive than in the rest of the UK and more so than had previously been the case under the old Stamp Duty Land Tax in Scotland. Although perhaps unlikely, it would be a very positive move for the Aberdeen property market, especially at the higher end, if these tax rates were to be revisited by the Government in 2016.
As the oil companies have shed many of their contractors over the last year, we have seen a corresponding drop in rental prices with many Landlords now routinely accepting a 10 – 15% drop in rental income. For many of our clients in times of low investment returns, owning buy to let property has become an increasingly appealing proposition. Next year, however, will see available tax reliefs on rental income restricted, “Wear and Tear” Allowance for furnishings withdrawn and tax relief for mortgage interest payments restricted. In December of this year, we will see the introduction of new legislation which will mean that all of Scottish privately rented property covered by the Repairing Standards will require to comply with the new laws, regardless of tenancy type. This has already proved expensive for some landlords whose leases will start after 1st December 2015 and the legislation will extend to all existing leases from 1st December 2016.
These are undoubtedly challenging times but we do not have to dig terribly deep to see some signs of encouragement and positivity around us. The oil price will not soar any time soon but things certainly do not appear to be nearly as bleak as they did two decades ago!
Should you wish to discuss or receive any further information regarding the above, please contact Patricia Gray, Property and Private Client Partner.