Magazine article Real Estate Issues

Focus on the United Kingdom: Residential Property-Do You Own Enough?

Magazine article Real Estate Issues

Focus on the United Kingdom: Residential Property-Do You Own Enough?

Article excerpt

THIS IS THE THIRD IN A SERIES OF FIVE ARTICLES providing my personal perspective on the state of the property market in the United Kingdom. The first article, which appeared in the Fall 2006 edition of Real Estate Issues, focused on some of the more generic key drivers and the macro-to-micro picture. The second article discussed the phenomenon of seemingly ever-rising values in the commercial property sector. The third article reviews the residential property market in several of its guises, the fourth will focus on affordability and the final article will highlight the seeds of doubt--key issues, words and phrases that trigger a response when they crop up in conversation and cause property funders, lenders and investors to stop and think about their assets.

One of the reasons for writing these articles is to draw, in the mind of the reader, a similarity or contrast between the UK and the property market in which the reader operates. It seems to me that property markets function in very similar ways around the world, and we can all benefit by experienced practitioners and commentators sharing their opinions and expertise. There are exceptions, of course, and the United Nations is doing what it can to help to create and re-order property markets in some of the globe's transitioning economies, especially those that are moving from a state-owned asset base to a freer market economy. From satellite mapping to comparable evidence, knowledge management in many of these developing countries is rapidly becoming more efficient than in countries with mature economies.


So, how big is the UK residential housing market? How is it funded? What are the key components? Are there more apartments or houses? How does the government intervene? Have rapidly rising prices made the market unaffordable for first-time buyers? Where is the market going in the future? What about carbon-neutrality in housing design? This article addressees some of these questions; others will be addressed in the next edition of Real Estate Issues.


Recent estimates place the collective value of houses in the UK that are owned by the public at large--presumably excluding housing owned by national or local government, Housing Associations, etc.--at [pounds sterling]3.8 trillion. In the past 12 months, that value has increased by more than [pounds sterling]400 billion because of soaring prices. Among the United Kingdom's four countries--England, Northern Ireland, Scotland and Wales--the strongest rise in prices has occurred in Northern Ireland. Though values started from a base lower than the other three countries, housing stock is now worth 165 percent more than it was five years ago. Over the past 10 years, the average UK house price has increased 120 percent, according to research conducted by the Royal Institution of Chartered Surveyors. The number of properties bought and sold in 2006 was 1.15 million, UK-based property research firm Hometrack reports. The number of borrowers who use more than half their monthly income to repay their mortgage is about 1.12 million.


One way of defining the residential property market is by the purpose of the acquisition. Buy-to-live is obvious--it is where we call home. The two subsectors are buy-for-kids, used as a way to get one's children onto the first rung of the housing ladder, perhaps near their university, and buy-to-sunbathe, particularly overseas, in sunnier climes than the UK. About 9 percent of UK adults now own property outside the UK. Buy-to-let is when an investor buys property with the twin criteria of rental income and capital growth; whereas buy-to-flip is when the investor buys property before construction and hopes to sell, or flip, it at a higher price before the project finishes construction and before the balance of the purchase price falls due on legal completion.

Various data sources have tried to estimate the average house price. …

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