Real Estate Market in the UK was valued at USD 17.87 billion in 2018 and is growing at a rate of 5%. It will reach USD 23.94 billion by 2024.
However, Brexit uncertainty and government taxes might restrain the growth of its market.
- Definition / Scope
- Market Overview
- Market Risks
- Top Market Opportunities
- Market Trends
- Industry Challenges
- Pricing Trends
- Regulatory Trends
- Market Size and Forecast
- Market Outlook
- Distribution Chain Analysis
- Key Market Players
- Strategic Conclusion
- References
- Appendix
Definition / Scope
Real estate is the physical tangible property comprising of land, its natural assets (uncultivated plants, crops, livestock, water, minerals) and the building on it. The real estate market is concerned with the producing, buying, selling and renting of properties for residential and commercial usage.
Here commercial segment includes the office, industries, medical, retail and hotel properties. On the basis of the type of property, its market is segmented into the following types:
- Residential Property ( self-owned and rented)
- Commercial Property
- Non-domestic Buildings
- Infrastructure
Market Overview
In the context of UK, the real estate market contributes to about 7% of the total GDP of the country. Its market size was valued at USD 17.87 billion in 2018 and is growing at the CAGR of 5%.
Here the revenue from stamp duty was about USD 11.82 in 2018.Within the time horizon of 2017-2018, almost 1208010 residential and 126,160 non-residential property transactions have occurred in the UK.
On the basis of the type of property, the self-owned residential property holds the largest market share of 59.7% with a revenue of USD 10.67 billion in 2018. It is followed by the rented residential property which is growing at the CAGR of 1% annually.
However, the government ban on the rented agent fees might create a risk for the growth of its market. The key market players engaged in this market are Primary Health Properties, Lavanda, Co-space, Ideal Flatmate, Agent Hub, etc.
Market Risks
- Brexit and Economic uncertainty
The economy of the UK is growing at a slow rate of 1.7% and the GDP growth per capita is just 1.2%, which is reduced from 1.5% in 2015. It might have happened due to the formal announcement of the withdrawal of the UK from the European Union in 2017.
This Brexit has caused economic uncertainty and slower growth in the housing price. Property sales volume has also been reduced due to a delay in Brexit. It might create a significant risk for the growth of the real estate market.
- Rising key rate and declining mortgage market
In the context of the UK, the key rate of the banks is increasing. For instance, the Bank of England has raised the key rate from 0.25% to 0.5% within the period of a decade.
In 2018, the average interest rate for mortgages with 75% loan to value was 1.76% for a two-year fixed rate and 4.39% for a standard variable rate. The inflation rate has also reached 2.4% above the bank target of 2%.
Along with this, loans for first-time buyers and home movers have decreased by 4.5% and 8.4% on a yearly basis respectively. It is creating a risk for the real estate market in the UK.
Top Market Opportunities
- Government reforms for increasing household supply
The government of the UK has made the provision of housing market reform through the publication of the housing white paper in 2017. On the basis of it, the house developers especially small and medium-sized one will receive the home building fund of USD 3.94 billion.
The provision of saving of almost USD 5259 and a bonus of USD 1266 per year is made for the housebuyers until they turn 50 years old.
However, the bonus amount will only be accessible to the house-buyers in case of the buying first home, illness condition and individual age reached 60 years old.
Along with this, the renting agent’s fees are banned. This reform significantly favors the growth of the housing and real estate market in the UK.
Market Trends
- Rising industrial property
In the UK, the total investment in the industrial property was almost 19% in 2018 higher in comparison to the ten-year average. Along with this, industrial rent was raised by about 3.7% in 2018. Increasing industrial investment is favoring the significant growth of the real estate market.
- Alternative Commercial property
Besides the commercial property, the property being used for the student, retirements, healthcare facilities, and hotel are gaining market growth. Although it holds the smaller segments of almost 1.82%, the rising number of fulltime students and tourism is favoring the growth of its market.
The direct renting of the households for students has raised from 900,000 in 2005 to 1 million beds in 2018 as there are around 1.8 million full-time students in the UK.
Along with this, the UK is the world’s 10th largest destination for tourism in 2018. From the tourism sector, the foreigners have spent USD 31.93 billion. It might drive the growth of the real estate market in the UK.
- Slow growth in housing price and new housebuilding
Over the past few years, the price of housing is growing at a slow rate as the growth rate is in a declining trend. The price growth rate has been declined from 4.9% in 2017 to 4.2% in 2018. Along with this, the average number of the new building to be built is quite low in comparison to the government target.
The government has a target of completion of the building of almost 240,000 new houses annually till 2020. However, in 2017, almost 197290 new started to build.
Declining in house price growth rate will significantly affect the revenue of the real estate market and might restrain the growth of its market.
- Introduction of new taxes in housing
In 2019, the government has introduced Capital Gains Tax for landlords, which is to be paid within one month of selling the property.
Another Annual Tax on Enveloped Dwellings has also been introduced for the companies purchasing houses in the UK. It might create a risk for the growth of the real estate market.
Industry Challenges
- Rising stamp duties rate
The stamp duty rate was about 5% for homes over USD 1.27 million and 6% for USD 2.53 million in 2012. At present, the stamp duty rate is discussed in the table below. It is quite challenging for the key market players to deal with the increased stamp duty rate.
Pricing Trends
In the context of Europe, the UK holds the second position in terms of the average price of apartments after Monaco. The average price of the apartment is USD 26910.46 per square meter in the UK.
Although the volume of the sales of the property is declining, the average price of the houses is increased by 1.2% within a year. However, it is growing at the slowest pace. The consumer price index has been declined from 2.7% in June 2018 to 2% in June 2019.
The average price of rent in the UK is USD 980 in 2018, increased from USD 965 in 2017. Its price is increasing at a rate of 1.6% on a yearly basis.
Regulatory Trends
The regulatory trends in the real estate market are discussed as:
- Lifetime Individuals Saving Account: On the basis of this initiative by the government, homebuyers can save up to USD 5,259 within a year. Here, the government has made provisions to add a 25% bonus to it.
- Starter Homes Policy: According to this policy, the availability of the starter homes will be made on the basis of the households’ combined income. If combined income is below USD 105,180 in London, then at least 20% of discount will be provided to the starter homes.
- The Panama Papers and anti-money laundering moves: It states that the foreign companies owning properties in the UK must declare their assets publicly.
- Extending right to buy on a voluntary basis scheme: It guarantees to replace sold properties with new affordable homes, which costs USD 253.24 million.
- Help to buy scheme: According to this, the government provides assistance to homebuyers through equity loan and mortgage guarantee. They will provide a loan of almost 20% of the full purchase cost of the new-build property.
Market Size and Forecast
The total market size of the real estate market in the UK was valued at USD 17.87 billion in 2018. It is expected to grow at the CAGR of 5%. However, existing economic uncertainty and rising government taxes might restrain it.
It contributes to about 7% of the total GDP of the country. Almost 1208010 residential and 126,160 non-residential property transactions have occurred in the UK.
On the basis of the type of property
- The self-owned residential property holds the largest market share of 59.7% with a revenue of USD 10.67 billion in 2018.
- The rented residential property holds the market share of almost 10.97% as the renting property is growing at a rate of 1% annually.
Market Outlook
Globally, the total market value of the real estate market is expected to reach USD 4263.7 billion by 2025. In the context of the UK, the real estate market is expected to reach USD 23.94 billion by 2024.
It is expected to grow at a rate of 5% within the time period of 2019-2024.
Distribution Chain Analysis
In the real estate market, the key stakeholders are estate agents, homeowners, real estate companies, and investors. Here, the real estate hires the real estate agents, which assists the homeowners and other property owners to sell their properties.
Along with this, they help the client to buy the appropriate property. Besides this, the government also plays a vital role in the regulation of the market through policy development, taxation and development schemes.
Key Market Players
In the context of the UK, there are almost 2600 companies engaged in the real estate market. the short profile of the key market players are:
- Savills Plc.: It is the international real estate advisor and leading property agent with 600 offices across the Americas, Europe, Asia Pacific, Africa, and the Middle East.
- Real Estate Investment Trust: It is the income-producing real estate company engaged in the transactions of commercial properties such as offices, shopping centers, etc.
- Open-Ended Investment Company: It is the United Kingdom-based company engaged in the investment of the stocks. It is operated through the spread of a wide range of investments.
- Primary Health Properties: It is the real estate company engaged in the investment on the modern properties for the healthcare sector. It has a total funding amount of USD 89.34 million in 2018.
- Lavanda: It offers Saas as the web platform which provides the services of real estate for residential, hospitality and travel.
- Ideal Flatmate: It is the organization engaged in letting real estate property providing services to flat for more than 1000 people every month.
- Agent Hub: It is also UK based company with cloud-based service, which can be accessed through any mobile, computer or tablet devices.
Strategic Conclusion
The real estate market in the UK is highly influenced by the economy and government policies. Its market value is growing at a rate of 5% because of the rising rent price, government housing schemes and growing industrial property.
However, government taxes, economic uncertainty, Brexit, and rising interest rate are causing restraint in the growth of its market.
References
- https://www.bpf.org.uk/about-real-estate
- https://www.ibisworld.com/united-kingdom/market-research-reports/estate-agents-industry/
- https://www.theguardian.com/money/2018/nov/21/stamp-duty-revenue-in-england-down-10-percent-third-quarter-thresholds-brexit
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.theguardian.com/business/2019/aug/08/uk-housing-market-at-its-weakest-point-in-a-decade-brexit-says-savills
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.ig.com/uk/news-and-trade-ideas/shares-news/how-is-the-uk-commercial-property-sector-performing—-181127
- https://www.ig.com/uk/news-and-trade-ideas/shares-news/how-is-the-uk-commercial-property-sector-performing—-181127
- https://en.wikipedia.org/wiki/Tourism_in_the_United_Kingdom
- https://www.theguardian.com/business/2019/sep/18/house-prices-in-britain-rising-at-slowest-rate-for-seven-years
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.globalpropertyguide.com/Europe/United-Kingdom/square-meter-prices
- https://www.theguardian.com/business/2019/aug/08/uk-housing-market-at-its-weakest-point-in-a-decade-brexit-says-savills
- https://www.theguardian.com/business/2019/sep/18/house-prices-in-britain-rising-at-slowest-rate-for-seven-years
- https://www.theguardian.com/business/2019/sep/27/how-has-brexit-vote-affected-the-uk-economy-september-verdict
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.ibisworld.com/united-kingdom/market-research-reports/estate-agents-industry/
- https://www.bpf.org.uk/about-real-estate
- https://www.globalpropertyguide.com/Europe/United-Kingdom/Price-History
- https://www.grandviewresearch.com/press-release/global-real-estate-market
- https://www.crunchbase.com/hub/united-kingdom-real-estate-companies#section-leaderboard
Appendix
- GDP= Gross Domestic Product
- CAGR= Compound Annual Growth Rate
- USD= United States Dollar
