07 Sep 2019
Is now a good time to buy a house, The residential market is hard to predict as a no-deal could negatively affect prices and the extent of the decline in growth is difficult to predict. KPMG predicted that the housing prices could drop by 6% if the UK leaves the EU without a deal. The hardest-hit areas could be London and Northern Ireland which are expected to see a fall in price by as much as 7% to7.5% respectively.
The data by Cushman & Wakefield research on alternative properties which involve student housing, hotels, healthcare, self-storage - that represent 37 percent of the commercial volumes, show growth in transactions volumes in student housing and healthcare sectors, while, a decline in office deals.
Is now a good time to buy a house in the UK?
The housing market in UK is becoming hard to predict as the time has come for the final stage of Brexit. The deal or no deal is dependent on a number of a complicated set of variables.
Savills states the market is at its weakest point as a lesser number of homes were sold in the first half of the year 2019 than at any point in the first six months of 2009.
Key factors influencing the price
- Consumer confidence - There are factors like consumer confidence which can lead to a shift in the housing market where if the consumer confidence remains high the housing prices will remain steady and if the confidence dips the prices will suffer. This is a factor which is the key to the movement in the price but it may not behave rationally or in a predicted manner.
- Mortgage approvals - The UK property market has been reacting unpredictably and the rise in mortgage approvals is one of the examples that show how the markets can be erratic.
- New construction home buying process - New construction work underwent one of the sharpest declines in the last months where the industry figures continue to decline amidst uncertainties where the experts say –“there has been a fall in order as softer demand eased the pressure on the supplier of construction material, which lowered delivery delays. Due to slow down, there is a lack of new work to replace the completed contracts.” Housing starts in London has declined to one of the lowest in the 7 years in the second half of 2019 and this is expected to become one of the key issues in the capital.
- Drop-in high-end supplies and the new listing properties - The market depicted a drop in high-end supplies and the new listing of properties worth over £1 million declined by 25 percent in the same time as the sellers are hesitant to put their properties on sale during the political turmoil. It is unlikely that after the settlement of Brexit the supplies will increase because many developers have chosen to wait for the settlement to come out before starting new projects.
- Knight Frank reports claim the home prices in the affluent neighborhoods like Kensington, Chelsea, Westminster and the City of London declined by 4.4% in August as compared to the last year and the home price in the outer London declined 3.4%.
- Higher demand and tightening supplies kept luxury home prices from falling and the brokerage had 29% increases in the number of people searching for homes. The branches in prime central London in the 12 months through July increased 29% as compared to last year.
Why it is a good time to buy a house in London?
Despite all the drawbacks, London is an international capital and it remains to be a global financial centre where about 24 percent of the investment was made into banking and financial sector in the last 10 years as per the CBRE reports.
Employment, lifestyle and economic advantages
- It continues to be one of the most active banking centres on the continent. Even amidst pressures and political turmoil, the properties in the capital city continue to get buyers from overseas as it is a global financial hub.
- The report by CBRE states more than 1.1 million people were employed in the UK financial sectors in 2017 where 34 percent were in London itself.
- The city accounts for 14 percent of the economic output of the continent and the trend is expected to remain steady where the banking and financial sector accounted for over 28 percent of the active space requirement in the third quarter of 2018.
Is now a good time to buy a house in London for overseas buyers?
Many factors are contributing to the momentum in buying a house like currency devaluation, global economic market conditions, interest rates and the low prices with discounts offered by some property dealers.
- In July 2019, the markets in Central London had some of the biggest deals (as per Savills) where a total of £1.394bn was invested in the West End properties and the City of London had 185 percent of the increase in transactions over June with 13 deals of worth £489m. Second highest monthly turnover was reportedly the City of London in the current year. The growth was experienced due to several factors like the improvement in sentiments and the growth in demand where the buyers who were waiting for Brexit to end by March – April, finally made their decisions in June – July to acquire the properties of their choice.
- In September 2019, M7 Real Estate acquired ten industrial and office assets in the UK to market the segment to the Middle Eastern sovereign wealth investors. The pan-European investor and the asset managers paid £29.9m for the assets, which were located across the UK. There were 6 transactions with 95% let to that included the single and multi-let industrial assets in different parts of the country like Swindon, Tunbridge Wells, Warminster, Barnsley, and others. The firm said the main aim of the acquisition was to get high yielding commercial real estate assets with capital growth potential, which could be able to generate diversified stable income over the medium term.
Who is buying a house in London?
The global demand for London priciest homes supported growth in prices where foreign investors have been putting money on such projects because the properties are available at a lower price and the British pound has declined.
One of the highest numbers of buyers in the City were from the US who accounted for one of the highest shares of investment made in the year, of over 37 percent of the total investments where the buyers from the US acquired 5 buildings in the City market worth £1.50bn. The buyers from the UK are the largest investors in the commercial properties who acquired over 31 percent of the total which included 34 buildings, and July had one of the highest growths in activities of the Asian investors who spent over £480m –that was twice the amount they spend in the rest of the year.
Many first time buyers have invested in properties this year and steps, like reducing stamp duties and offering incentives to buyers, can help in bringing more buyers into the market.
Is this the best time of year to sell a house?
In August 2019, the momentum picked up in London properties as the homes were selling faster than any point in the year, where the sale of the property was taking a little over 13 weeks. The prices in the region peaked in 2014 and now the markets have stagnated due to higher stamp duties and political confusion.
There are some areas which have declined but many overseas buyers are looking for prime London properties available at lower prices. Currently, the market is trying to rebalance the supply and demand and is expecting to see growth in the coming year.
Buying a House in Scotland
The legislative changes on the second home, with the additional 3% stamp duties and the regulation that requires the buyers to show their identification, hit the capital property buying trends. Affordability has been a major issue in London markets where the buyers are looking away from the south to regions where the prices are lower. The problem of unaffordability has resulted in creating a decentralized UK housing market where the buyers are looking elsewhere away from the south to areas where the prices are reasonable and growing.
London reacted poorly to the uncertainties created by Brexit but the prices in the North and Scotland are growing regardless of post Brexit predictions on housing. Five years ago the properties in Scotland took over 66 days to get a buyer but now it takes less than 41 days as the markets in North and South are divided, and the recent trends are favoring Northern powerhouse. The activities and price movement in the north has been vigorous and northern regions continues to attract overseas buyers.
Summary - Is now a good time to buy a house UK in London for investment purpose?
There are many factors in favor of investment. London has a favorable regulatory framework, strong capital markets and there is continues inflow of tech talent which helps the city to maintain its positions as a global leader. The fall in the pound has been a factor attracting large global players in the UK property market. London is the key centre for fintech where 71 percent of 788 high growth firms of the country is based and the sector is expected to grow by 30 percent where more than 100,000 employees will be working by 2030. The sector has been facing the challenges of Brexit and many firms are preparing for some of the worst outcomes of the Brexit. But not much has changed and only a few companies have shifted their base from the capital city to other places and many companies are not moving out due to heavy costs and complications involved in shifting base.
If the UK dollar remains strong in comparison to GBP, investors, and expatriates in the GCC nations will seek alternative investment options in the UK in the post- Brexit phase. The EU is GCC’s top trading partner followed by China and Japan.
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