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FT REPORT – HOUSE AND HOME: Growing with the flow

By Eluned Price, Financial Times
Published: Jul 14, 2007

House prices in the UK rose by an average 9.9 per cent last year. However in Aberdeen, the principal city of Scotland’s north-east coast, whose elegant granite neo-classical buildings inspired its soubriquet the Granite City, residential values rose almost three times as much. And, thanks largely to oil, they look set to keep gushing.

Aberdeen’s geographical position has always accounted for its importance. Its deep harbours, where fishing and shipbuilding once thrived and where Thermopylae, the fastest clipper in the world, was launched in 1869, have now been sculpted to provide for the giant vessels of the energy industry.

Overlooking the North Sea, bordered by the River Dee to the south and the River Don to the north, Aberdeen created its medieval wealth exporting wool and fish and trading with the Baltic and German states. From the 15th century its university turned out doctors and clergy while Marischal’s College later provided lawyers and administrators for the Scottish Crown. The two institutions amalgam-ated in 1860.

By then the city fathers had built a 60ft-wide granite viaduct spanning the Denburn Valley, which opened the city westwards but bankrupted it. However, as with its recoveries from numerous battles and the Black Death, Aberdeen emerged stronger than before. The combination of education, imagination and tenacity has always provided its sons and daughters with the resources they needed to work both land and sea.

It is from the sea that most of Aberdeen’s current wealth derives. Over the past 30 years the city has played a vital role supporting some of the companies that have extracted almost 35bn barrels worth of oil and gas from the North Sea. Experts say there are another 25bn barrels still left.

“Because of the energy industry Aberdeen has a micro-economy that doesn’t follow the fortunes of the UK as a whole,” says Robert Fraser, partner with Aberdein Considine, a firm of lawyers and estate agents. “Between 1985 and 1989 the slump in oil prices caused flats here to drop 25 to 30 per cent while the rest of the UK was booming. Our market came back in 1989-1990 when the south of England was depressed.”

Not only is Aberdeen the offshore oil capital of Europe, it has become the hub of the offshore energy network for the entire world, with increasing work on global projects such as research and exploration in Africa, Russia and South America. Royal Dutch Shell, with 2,500 employees in Aberdeen, is investing £25m in offices at Tullos, just to the south of the city centre. To the north-west at Dyce BP’s new £45m headquarters, housing 1,200 employees, will be ready by the end of this year.

Aberdeen has the world’s biggest civil heliport, the departure point for flights to the North Sea oil rigs, and therefore has flourishing avionics companies. Drilling contractors the Abbot Group, energy support services provider Wood Group, and First Group, the UK’s largest transport company, all have their global HQs in the city. Small wonder that Aberdeen’s second university, the Robert Gordon University, is rated the UK’s most successful for graduate employment and that the property market is thriving.

Keith Allen, senior property partner at Raeburn Christie Clark & Wallace, says property prices used to increase at a steady pace in Aberdeen until about three years ago. “The Aberdeen Solicitors’ Property Centre reported an increase of 16 per cent in 2005,” he says. “Until recently, price rises were set at the beginning of the year and stayed like that for the rest of the year. Last year they jumped by 21 per cent according to the ASPC and 27 per cent according to the Bank of Scotland. And in recent months the market has jumped again by 10 to 15 per cent.”

In the heart of the city, where even the streets are cobbled with granite bricks, or “cassies”, there remain splendid examples of late-Georgian town planning. As the city spread, tenements housing the workers of the weaving and mining industries sprang up while their employers settled themselves along the west end of the city in gracious avenues of mansions and villas that have since been converted into offices. Even the ancient fishing hamlet of Footdee (pronounced “fittie”) to the south is becoming gentrified.

In Scotland, property sales use a sealed bids system. “Here’s how fast the market moves,” says Allen. “A granite farmhouse came on the market on a Monday at offers over £295,000. On behalf of a client we put in an offer £100,000 over, on the Thursday, subject to survey. The surveyor came on Friday morning. By Friday afternoon they had had three more offers. We lost by £30,000.”

He says this buoyancy is not due only to the energy industry. “Twenty years ago people didn’t buy their first flat until they were married. Now they expect to buy much earlier. And, of course, there are more singles, more divorcees and the parents of students aiming to house their offspring. Then again, buy-to-let investors are scooping up one- and two-bedroom flats at the lower end of the market and outbidding the first-timers. That takes them out of the general stock that would otherwise circulate every three to five years.”

Alison Milne, his property consultant, says: “You’d be lucky to rent a one-bed flat for £500 a month. A new two-bedroom flat costs £180,000.” As for period flats, she recently oversaw the sale of a two-bedroom, ground-floor apartment in an Edwardian granite end-of-terrace in the west end. With high ceilings, pitch pine shutters and Minton tiles, it hit the market at offers over £230,000 and sold for £311,000.

Fraser says the ready base of oil executives, being well-paid tenants on short-term contracts, can yield the investor a 7 per cent return. The student market offers 5 to 6 per cent.

Even the lower end of the city’s market – with granite-built public housing – is a cut above most. A one-bedroom flat at offers over £89,000 is likely to fetch 45 per cent over the asking price. Prices in the cobbled, square half-mile of Old Aberdeen surrounding King’s College are depressed by the proximity of sprawling, more modern low-income estates. Nevertheless, a four-bedroom Georgian granite terrace was advertised recently at offers over £185,000 and sold a week later for £276,400.

Says Alex Hutcheon, founding partner of Hutcheon Rattray: “Prices are rising not month by month but week by week. And the current pricing structure doesn’t reflect the prices actually being achieved. The asking prices are historic but if you moved them up you simply wouldn’t get the viewings or, therefore, the competition at closing”.

The most prestigious areas are all west: the West End itself, Cults, Bieldside and Banchory, a small town on the Dee a half-hour drive away.

Typical of Hutcheon’s sales and exemplifying his comment is a five-bedroom, semi-detached Victorian granite house in the west end, featuring stained glass windows, garden and garage that recently went on the market at offers over £475,000 but sold for £691,222.

Banish the stereotype of a dour Aberdeen. The rain washes the granite and it sparkles in the sunshine like a city set with precious stones. Which, in a way, is what it is.

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