Factors affecting real estate prices in London

Factors affecting real estate prices in London

Real estate refers to properties, including buildings and the land to which they belong. It is also comprised of the natural resources, including mineral, water, and the crops found in it also, the immoveable property that may exist in the specified piece of land. Also, it includes interests vested in it, including items of real property, also form part of the real estate. It can also be viewed about the profession of buying, renting, and selling of lands, buildings, and housing. The price of real estate in London has fallen at the most rapid rate following the financial crisis that was experienced one decade ago. This happens as London is faced with the burden of accommodating the national torpor in the property market. This paper analyses the factor of the dropped prices in the real estate sector in London to determine the possible factors that have contributed to affect the prices of real estate in the region.

Even with the significantly increased number of potential buyers of the real estate property in London, the average cost of houses in London dropped by approximately 4.4% in the first half of the year 2019 in comparison to what the housing rates were precisely a year ago. This data is about the official snapshot of the market obtained from the office of national statistics. This drop was the biggest with regards to the cost of real estate in London, after the yearly fall recorded in august of 2009, which at that time stood at 7.0%. This was at a period that encompassed a near-meltdown of the global banking system of the autumn of 2008. According to the Office of National Statistics, the current easing of real estate inflation characterized the latest stage of a three-year downward trend that has been experienced following the most recent peak in the sector experienced at 8% in the year 2016. Before the 2016 incident, the real estate prices had surged in the run-up to the 2015 elections as a result of initiatives taken by the treasury and the bank of England to boost activity.

Even with the period characterized by significantly low rates on interest, the real estate prices in London have been affected by a wide range of factors. Among the factors that have contributed to the effects include the difficulties experienced by first time buyers in affording the set prices set for real estate in London. There is also the reluctance to adopt the purchase of expensive commodities in a period when uncertainties regarding Brexit continue to dominate. By May of 2019, the average cost of housing in London was valued at two hundred and twenty-nine thousand pounds, a price that was at two thousand pounds higher in comparison to the same period in the year 2018. The statistics of the Office of National Statistics point out that the inflation experienced in the real estate sector is, however, much below the overall measure of the costs of living. There is the fact that the overall rate of inflation in the country has remained steady. For instance, while the prices of diesel and petrol fell in the year 2019, they had significantly risen in the year 2018. Clothes, on the other hand, had been increased in price in the year 209 in comparison to what they were priced in the year 2018.  Even with the inflation experienced in the real estate sector, the prices had fallen by 0.6% in June of 2019. Since the end of 2017, the cost of real estate has remained significantly unchanged, even in the years that followed the existence of London as the mainstay of the housing market in the United Kingdom.

A lot of speculations have risen following the effects of Brexit in the housing market of the United Kingdom. However, there is significantly minimal data to support any stand on these speculations. Other than the thoughts on the effects of Brexit in the fall of the prices of real estate, there are, however, factors that can be used to argue for the fall of the real estate prices in London and at large the entire United Kingdom. Among these factors that could be considered as national factors, in these cases, including the aspect of the significantly notable low rates in earning experienced throughout the country. There are, however, other factors, such as the increased rate of migrations away from London to other places.

Among the factors that have contributed to the low pricing of the real estate sector include the ripple effect factor. Since the early 1970s, the United Kingdom has experienced a phenomenon referred to as the ripple effect over continuous cycles. Periods of economic boom have been characterized by a significantly fast rate of rice in the house prices, first in London and the southeast. Even with London staying at the front, the percentage difference of the rise in price has not been much.

The second element contributing to the rate of the pricing of real estate in London is the aspect of the income growth of the population. Changes in the regional pricing of commodities in most cases are, to a great extent, influenced by national factors such as the low levels of growth in real income and low levels of rates of interest. The aspect of real income has a significant impact on the prices of real estate. In any economy, with a 1% increase in the amount of real income, there is a 2% increase in the prices of real estate. The relationship between the rise in the amount of real income and the amount of real estate is t that when the number of real income increases, the individuals can pay more for real estate. Since the rise in the percentage of real estate is higher in comparison to the increase in real income, in the case that real income fails to increase, the amount of real estate is twice affected. In the office for Budget Responsibility, the independent fiscal watchdog of the United Kingdom has downscaled its national house price forecasts, with the recognition that weaker productivity in the country is resulting in lower income growth. In March 2016, for instance, the office of Budget Responsibility expected the nominal house prices to rise by 4.7%, however, due to the low-income growth, the projection was revised to a lower 2.7 % by March 2018.

The aspect of supply, demands, and regional patterns have also been instrumental in affecting the pricing of real estate in London. In this sense, the elements of higher demand for real estate in London, the shortage in supply, and the internal migrating pattern are also instrumental in the determination of the real estate prices in London. The understanding of this phenomena can much be understood from the analysis of the southeast- much inner London in comparison to outer London, and relative to the entire southeast. The outstanding factor about this region is that it is composed of areas that are not physically from one another. The nature of migrations that occur in these regions is consequently of very short distances. With regards to the data from the 2014-2015 English Housing Survey, an approximated 74% of the people who moved were the heads of the households and under the age of 55 years, and relocated to places that were not far than ten miles distance. Further, approximately 24 % of the movers moved to areas than one mile away from each other. Over a long-time period, London has had several people migrating from it in comparing to those entering it. Even though it is still attractive to the younger population, it has significantly lost the older generation. The loss of the older population significantly grew between 2016 and 2017, to exceed more than one hundred thousand migrants over the period alone. There is a direct correlation between the pattern of movement and the prices of real estate in London. With the increased number of potential real estate buyers moving from London, there is a drop in the amount of real estate pricing. This is a move towards attracting buyers to the real estate that is become more unfordable to the population in London.

Another factor that has affected the rate of real estate pricing in London is the aspect of property type consistent. In this case, there is the fact that detached houses, terraced houses, flats, and semidetached houses have had their prices fluctuate similarly. This even with the fact that there are definite differences in the pricing of these properties. Similar to the possible movement of households between various localities, there is the fact that they can have substitutes for the types of houses, leading to the similarity in the change and adjustment of pricing. The fall in the price of real estate in London can be attributed to the fact that there is a need to harmonize the costs of the house. As there is increased movement of individuals from the more expensive areas to cheaper areas, the expensive areas lower their prices in the bid to remain attractive to customers.

The final factor that affects the pricing of the real estate properties is the aspect of monetary investments and low rates in interests. The real estate sector in London is not only viewed as a consumption good, but also with regards to the role that it plays in the aspect of investment. For this reason, there is the argument that the real estate in London is significantly tied to the charges put on interest rates more than any other place in the country. This means that due to the gradual rise in the interest of the country, London bears the burden in comparison to all other locations. The interest rates currently charged in the united kingdom affects the prices of real estate as buyers view the venture as loss generating rather than a positive move towards investment.

Conclusion

Undoubtedly, there has been a significant decrease in the price of real estate in London. Despite the fact that the real estate property is still much higher priced in comparison to other regions of the country, the significant drop in the prices cannot go unnoticed. Even with the Brexit being attributed to this drop, it cannot be affirmed entirely as a factor. There are, however, various elements seen to contribute to the decrease, including the low rates in earning, the ripple effect factor, and the low prices of making on investments. Also, income growth consistency and migrations of the population from London to the rest of the country has contributed to the increased drop in the prices of real estate property.