Land and Property Land and Property Market in U.K.

Land and Property Market in U.K.

Introduction

The UK property market is cyclical just like every other market. It goes up, and it goes down. The long-term trend in the UK is tip. The fluctuation in house prices are due to short-term changes in supply and demand which is influenced by factors such as interest rates, availability of finance, the media and the effect it has on public sentiment, level of employment and the economy in general (Baum 2009, p. 36). When investing in property, many people apply the strategy of “Buy Low and Sell high' which is a strategy borrowed from stock market investing.

In economic terms, the property market is an imperfect one. Each property is different. Housing, rentals, commercial and industrial estates comprise the main sectors of the property market in U.K. This report provides a brief overview of the demand and supply of each of these sectors. The prime focus of this report rests on the housing market, which has had struggled a lot in recovering from the 2007 recession, the impacts of which are still persistent in weaker demand and supply. The paper also provides the future outlook of U.K.'s commercial and residential property market and proposes recommendations for investments in the housing market.

Trends in Property Prices

Buyers and sellers interact with each other for the purpose of offering and agreeing to prices, prior to the final transaction. Therefore, it is important to discuss the functions of demand and supply which establishes the market value and price of properties in the real estate. Every transaction in the property sector of UK depends on:

The determined or the settled price, which the seller is prepared to accept in exchange of their estate with the potential buyer.

The price (actual) which the buyer can afford to pay.Offers are placed by the buyers for a property, which can either be accepted or rejected.

The growth in property prices start to slow in 2007, and then fall in 2008 and into 2009 (Congost & Santos 2010, p. 56). Essentially, this is due to a combination of both a fall in demand and an increased supply of property at the same time, which has caused the recent fall in house prices (Journal of Real Estate Finance & Investment 2009, p. 4).

There was a boom in house price from 2001 to 2007 mainly fuelled by the increased popularity of investing in property and the improved availability of Buy to Let mortgages. It became very easy to borrow money to buy investment properties with lenders offering up to 90% Loan To Value (LW) for Buy to Let mortgages (Congost & Santos 2010, p. 56). As prices shot up, investors round that although rents were rising then were not in line with increases in property prices. It soon reached a point where investments just did not stack up because the purchase prices were too high compared to rent that was achievable. This inability to get property to stack up resulted in most ...