The state of the real estate market in UK - Essay Example

? OF REAL E MARKET IN UK Task of real e market in UK Introduction Real e encompasses land and its additional features that increase its value. In United Kingdom (UK), the term real estate is dissimilar with different names. UK uses the word real property to denote real estate, which describes the land and its fixtures such as buildings and resources like minerals, water and harvests. While real estate market is the periodic change in upsurge of output alternating with the decline within a given time. In 1980s to 1990s, house prices appreciated by 300% while those of raw land raised by 1000% leading to recession (Newell & Sieracki 2012, p. 11). As from 1970, the average total price of the house for the first time buyers has increased for approximately 3, 100% at the same time, income average of the purchasers increasing by 1,900%. London records the lowest price of real estate to the initial buyer followed by South West. The alterations that happened in UK from 1980 to 2010 indicates how the country perceived an extraordinary increase in housing demand leading to increase in house prices. In 2010, house prices had raised threefold in 15 different cities and twice in 62 cities as compared to the house prices in 2005 (Baum & Hartzell 2012, p. 379). The cities, which recorded the highest rise in the house prices, were Southern England, Salford and Newcastle while Scottish was among the countries, which recorded the least increases in prices of the house. Macroeconomic incidents in real estate market Compared to other markets, the real estate market follows the fiscal principle of “supply and demand” (Taniar 2010, p.3). In real estates, they refer to it as absorption rate, which describes the current housing demand against the time it takes to captivate the inventory supply. In July 2010, more surveyors in the UK real estate sectors reported a fall in house prices from July 2009 (Taniar 2010, P.3). Coincidentally, the purchasers demand fell as the total properties brought on market increased. During that period, 8% of the surveyors testified a fall in the house prices rather than a rise. Regionally, London and North West were the two areas that experienced an increase in the house prices and the demand prices from purchasers increased. In 2010, the UK average number of real estate on the surveyor’s book raised by 4.1% from June raising the total average to 69.1, which was a drop of 0.1%. This led to the stock ratio sales dropping to 24%, which recorded the lowest level ever since June 2009. 1% more surveyors in the real estate recorded a rise surpassing a fall in total transactions which was a drop of 3% in the June 2009 transaction (Dijkman 2010, p.53). The total real estate supply raised and agents’ recorded a total average of 68% properties in contrary to the 59 of June 2009. The first time buyer (FTBs) percentages of total sales improved from 21% witnessed in June 2009 to 26% making the threshold of Stamp Duty Land Tax to rise to 250, 000 pounds (Jin, Yui & Zhixiong 2010, p. 527). In July 2010, both demand and supply for the real estates increased which was good news for housing market. According to the brokers in real estate, the total number of houses plus apartments in London traded for over 5 million pounds increased from 31% to 262%. On contrary, source of houses plus apartments for the sale above 5 million dollars significantly decreased leading to the raise of demand as inventory dropped. According to international luxury market, the prices of real estates in London were rising due to scarcity of property (Mun 2012, p. 676). This led to the real estate sellers in UK to accept the new trends in realities involved in luxury housing thus accepting on residence not commanding the real estate prices (Jinjarak & Sheffrin 2011, p. 246). During that period, general market activities and hopefulness increased leading to the drop in inventory while an increase in demand, which steered to inadequacy in classy housing inventory. In that year, the London extravagance homebuyers had problems whereby the overseas buyers purchased most of the houses and apartments that traded for over 5 million pounds (Barkham 2012, p. 21). The Worlds billionaires flooded in UK to purchase and invest in the real estate market but UK had fewer products to offer. Most of the interest generated in that year came from Italy, Spain and Greece because the three states favor the security and stability of the real estate market in UK (Chan, Treepongkaruna, Brooke et al 2011, p. 1426). However, UK experienced the above benefits with some limitations, which included; the dollar weakened making foreign buyers of real estate to transfer their investments to New York City (Hayness & Nunnington 2010, p. 94). Therefore, the UK real estate agents lowered their trading prices by offering a purchasing discount of 24% to foreign purchasers. Average rate of mortgage paid by the UK household had been declining for the previous 20 years but by 2010, it was at 16.6%. At this period, the personal income increased by 6.7% in 2009 and depreciated by 5.1 in 2010 (Jolly & Kennedy 2011, p. 225). Different factors such as the social, legal, economic, political and technological affect the real estate market in UK. Firstly, the social factors involve what the given population of people comprises. For example, their age, race, total income, their patterns of migration, gender and the rate at which the population grows. These statistics contributes a lot to the general pricing of real estates in UK (Nwagugu 2011, p.38). Changes in the demographic designs have shown significant impact to the real estate trends either by raising both the real estate demand plus supply or by lowering them. For example, in times of baby boomers, increases the total population of an area therefore affecting the real estate market. The changeover of the baby boomer cohort to retirement regime also brings a noticeable change to the market (Keil 2010, p. 651). Secondly, the economic factors distress the real estate value in UK. These factors can be observable using economic indicators of a country such as GDP, the rate of employment, costs of goods and the manufacturing activities within that country. Therefore, sluggish economy demonstrates how the real estate is like. In UK, the economy has different effects on real estate. For example, most of the REIT in UK puts many of their investments in hotels therefore, during incidences of economic fall; it negatively affects real estate market (Ebrahim & Hussein 2010, p. 162). Thirdly, in UK, legal factors contribute to sizable effects on the demand, deductions, prices, subsidies plus supply of the real estate. Therefore, most real estate negotiators keep track of the government incentives because they help them in determining the variations that exist among the rate of demand and supply together with ascertaining possible false trends. In 2010, the UK government implemented a first-time homebuyer’s tax tribute to every homeowner to avoid home sales in inactive economy (Matauschek 2010, p. 45). This introduction of the initial homebuyer’s tax increased the total demand of real estate products making the market to grow. The growth in both size and scale of real markets attracts many investors in UK, which promotes real estate market (Tiesdell & Adams 2010, p. 75). Fourthly, there are technological factors that largely transform the geographical regions and weaken the barriers affecting them. Finally, the political factors include the political stability of UK, which increases the total investors in the real estate sector thus improving its market (Bardhan, Edelstein & Kroll 2011, p. 319). Diagram of macroeconomic analysis of real estate market Indicator Influence of macroeconomic on the real estate market Increase in the total population of UK increases residential demand for the real estate products Employment boosts GDP Diagram of SLEPTEC analysis of real estate market Social In UK, legal factors contribute to sizable effects on the demand, deductions, prices, subsidies plus supply of the real estate Political factors Conclusion Real estate globalization is an economic life fact where by cross-border savings are becoming common in tangible assets plus the portfolio savings. Most of the global real estate markets face barriers caused by different factors, which include social, political, technological, economic and legal. UK real estate market along with other countries real estate market encounters various opportunities and challenges in the worldwide market. Despite of changes in the legal reforms in UK, some issues still complicate development, ownership and leasing of real estate market. Therefore, the government should collaborate with the real estate owners and agents to come with favorable reforms that enhance the growth of real estate market. List of References Bardhan, A, Edelstein, R & Kroll, C 2011, Global Housing Markets: Crises, Policies, and Institutions, John Wiley & Sons, West Sussex: UK Barkham, R 2012, Real Estate and Globalization, John Wiley & Sons, West Sussex: UK Baum, A & Hartzell, D 2012, Global Property Investment: Strategies, Structures, Decisions, John Wiley & Sons, West Sussex: UK Chan, K, Treepongkaruna, S, Brookes, R et al 2011, Asset market linkages: Evidence from financial, commodity and real estate assets, Journal of banking and finance, Vol. 33, no. 6, pp. 1415-1426 Dijkman, M 2010, Retail Space Europe, Real Estate Publishers, West Sussex, UK. Ebrahim, S & Hussain, S 2010, Financial development and asset valuation: The special case of real estate, Journal of Banking and Finance, Vol 34, no. 1, pp. 150-162 Haynes, B & Nunnington, N 2010, Corporate Real Estate Asset Management: Strategy and Implementation, John Wiley and Sons, Routledge Jin,Y, Yui, C & Zhixiong, Z 2010, Real Estate, the External Finance Premium and Business Investment: A Quantitative Dynamic General Equilibrium Analysis, Journal of Munich University Library, Vol. 33, no.6, PP. 522-527 Jinjarak, Y & Sheffrin, S 2011, Causality, real estate prices, and the current account, Journal of Macroeconomics, Vol. 33, no. 2, pp. 233-246 Jolly, A & Kennedy, D 2011, A model for Examining Foreign Direct in Real Estate, Journal of New Business Ideas & Trends, Vol 9, no. 2, pp. 23-33 Keil, R 2010, Real Estate, the City and Place: The Crisis Unfolds, Journal of Urban and Regional Research, Vol 34, no. 3, pp. 647-651 Matauschek, J 2010, Rent Adjustment and Tenant Default in English and Germany Commercial Property Leases: An Economic and Legal Analysis, Peter Lang, London Mun, J 2010, What Is So Real About Real Options, and Why Are They Optional, John Wiley and Sons, West Sussex: UK Newell, G & Sieracki, K 2012, Global trends in real estate finance, John Wiley & Sons, West Sussex: UK Nwogugu, M 2011, Risk in the Global Real Estate Market: International Risk Regulation, Mechanism Design, Foreclosure, Title Systems, and REITs, John Wiley & Sons, West Sussex: UK Taniar, D 2010, Computational Science and Its Application-ICCSA: International Conference. Springer, New York: NY Tiesdell, S & Adams, D 2010, Real Estate Development, Urban Design and the Tools Approach to Public Policy, John Wiley & Sons, West Sussex: UK Read More