The state of the real estate market in UK - Essay Example

? The of the real e market in UK al affiliation The of the real e market in UK 0. Introduction All forms of businesses are influenced in one way or another by SLEPTEC factors. The real estate market in UK is no exception. The real estate in UK has indicated a declining trend since the early 2000s. The prices of houses in the UK recorded an increase with a great percentage of individuals showing an interest in purchasing houses. In response, the government of UK identified a hitch in the real estate business. This is an interpretation of the fact that the issue of supply and affordability of the real estates needed to be scrutinized. The issue was categorized as a social, political and economic problem. International Monetary Fund (IMF) (2010) indicates that with time various personalities gave varying view in regard to the issue. This essay shall attempt to scrutinize state of the real estate market in UK as at 2010. SLEPTEC dimensions will be applied in an attempt to analyze the status of the real estate business in UK. 2.0. Body 2.1. Increase in demand for rental houses In the UK, the cost of paying rent went high. With this, demand for rental houses also escalated. A great percentage of investors joined in the real estate business with the expectation that they will amass a lot of profits from the business. The amount of rent went high at an alarming rate with the number of investors increasing. Baum & Hartzell (2012) indicate that the amount of supply for real estate as at 2010 was very low. On the other hand, CML (2010) indicates that in the year 2010, the real estate business was booming and was very profitable at that time of the season. According to business analysts, this kind of scenario is referred to as a profitable mix, an inclusion of both demand and niche in the supply. In relation to the failure of the real estate business, this concept has a great correlation with the increase in the need to create a supply chain for the increase in demand by the tenants. With the rent yielding a lot of profits, the market experienced an influx of entrepreneurs in the business of real estate markets. With time, the real estate became flooded with a lot of people claiming a piece of the market. At one point in the businesses, a good number of entrepreneurs were wiped out of business. This led to a decrease in the number of investors in the business due to the tough competition. At the end of 2010, the business faced a lot of challenges and was not considered profitable at all. This is a major indicator of the reasons the real business declined. 2.2. High building rates Despite the increase in population in UK and the number of willing investors in the real estate business, the building rates still remain high. The international standards, according to FSA (2009), did not meet the booming prices in the period of 2010, since the building regulations were extremely high. On the other hand, the population in UK was rising at a high rate; thus, alteration in the household sizes. Just like indicated earlier, it is the need to fulfill the demands of the market that led to an increase in the supply of the real estates. However, in the period of 2010, less people invested in the business during the economic recess. The returns from the business were extremely high to an extent, that the government recorded a deficit in the number of houses; thus, researchers and made a recommendation through the Town Planning Council that over 200,000 houses must be built so as to cover the increase in population. Donald & Mc Millen (2010) indicate that by the end of 2010, the real estate had recorded a deficit of around one million houses, a clear indication of the fact that investors had backed out for a more profitable business. On another angle, the amount of credit offered to the real estate businesses decreased to a great extent, rendering many businessmen with no other option but to get out of the market. With this in mind, Great Britain: H.M. Treasury (2010) indicates that the government’s move to revive the real estate business by 2020 is almost unrealistic. It is, therefore, justified to argue that only a long term solution would be applicable in the real estate businesses in the UK. 2.3. Increase in inflation rates As at 2010, the inflation rates were extremely high in UK. At the end of 2010, the inflation rate was predicted to stand at 1% or slightly higher. At that time, the economy remained stagnant while the inflation rates kept rising. In this context, therefore, Forrest & Yip (2011) indicate that many real estate businessmen abstained from taking part in the business as the caches of undergoing losses was of high probability. This is one of the most important reasons behind the collapse of the real estate business in UK. While the market deteriorated, the number of persons that took part in the business portrayed a great likelihood of the collapse of the business, which was proven at the end of the year (Crosby, 2008). 2.1.1. SLEPTEC Analysis Some of the SLEPTEC factors facing the real estate business in the UK include social factors that can be analyzed in the perspective of the reputation of the real estate business that led to an increase in the demand for houses to suit the growing population in UK. Just as discussed earlier, the business was faced with the challenge of high rates of inflation in the market as well as low rates offered on the businessmen. In terms of legal requirements of the real estate business, the government imposed stringent measures on the businessmen. The interest rates on the lending conditions on the real estate business owners recorded an uphill trend. Dijkman (2007) indicates that, as a result of tightening lending conditions, the cost of investments went high, with many investors opting to walk out of business. It became worse when the economy experienced recess, as many investors experienced losses. Alternatively, GE Money (2008) indicates that the whole situation worsened when Iceland’s banking system collapsed, since a great percentage of the depositors of the real estate business had invested in the business. The third aspect of the SLEPTEC analysis is the economic aspect that indicates that high interest rates on the real estate business has created a situation whereby the investors in the real estate business have less income to invest in the business. Majority of them were wiped out from the business as could not handle the stresses come along with the demands of the business (Saleh, 2010). This aids in the explanation of the reasons behind the disintegration of the real estate business in UK. In an attempt to analyze the real estate business in UK, there is a great likelihood that the political aspect of the SLEPTEC analysis applies in the situation. Nelson et al (2002) indicate that inclusion of political attributes in the real estate business decrease the ability and motivation of the businessmen to come up with new business ides regarding the business in general. With the government coming in to control the business in terms of land ownership, creation of a situation whereby individuals cannot cope with the tough conditions comes up. Consequently, a great percentage of the individuals pull out of business. Stoscheck (2011) indicates that the business is characterized by too much overregulation by the government in such a manner that businessmen feel insecure investing in the business. This is yet another cause of failure of the business in UK. In terms of technology, the investors of the real estate business tend to stand a better chance to offer quality services to its clients. However, the economic situation as at 2010 could not allow them survive in the business. With the high inflation rates and a stagnant economy, losses were experienced in businesses and a resultant of high losses in the business (Newell & Sieracki, 2010). Finally, the ethical and competitive aspects of the real estate business contribute greatly in both the success and failure of the business (Nwogugu, 2011). In terms of ethical, the business was able to follow all the measures set in order to have a go ahead to conduct the business. The entrepreneurs were greatly responsible in relation to the corporate value policy that stated that all buildings must meet the standards of business. The business was in line with the legal requirements; thus, creating a situation whereby they can handle their competitors in an easy manner. Conclusively, in the case of competitive ability of the business, the real estate business is extremely competitive and the chances that one can be wiped out of the market are very high. The success of a business relied on their ability to deal with tough situations in the market by identifying something unique that will cause the business ton stand out from the rest. This is an interpretation of the factors behind the collapse of the real estate business (Mas & Stehrer, 2012). 3.0. Conclusion Despite the increase in need to satisfy the need of the real estate businesses in UK, the results portray a great disparity with the previous set presumptions by the businessmen. With the tough economic conditions in UK, it proved extremely difficult for the businessmen to handle the situation at hand (OECD Economic Surveys, 2011). From the SKEPTEC analysis, it is evident that the businessmen are more than willing to take part in the business but political, economic and competitive abilities are way beyond their ability to deal with such to deal with tough situations in the economy; thus, the breakdown of the entire business in 2010. References Baum, A. & Hartzell, D. (2012). Global Property Investment: Strategies, Structures, Decisions. New York: John Wiley & Sons. CML (2010). The Outlook for Mortgage Funding Markets in the UK in 2010 to 2015. CML: London. Crosby, J. (2008). Mortgage Finance: Final Report and Recommendations. London: HM Treasury. Dijkman, M. (2007). Europe Real Estate Yearbook. London: Real Estate Publishers BV. Donald, J. & Mc Millen, D. (2010). Urban Economics and Real Estate: Theory and Policy. New York: John Wiley & Sons. Forrest, R. & Yip, N. (2011). Housing markets and the global financial crisis: the uneven impact on households. New York: Edward Elgar Publishing. FSA (2009). UK Non conforming RM BS, Performance Review Q309 Fitch Ratings, London. GE Money (2008). The Sub Prime Mortgage Market. London: GE. Great Britain: H.M. Treasury (2010). Budget 2010: securing the recovery, economic and fiscal strategy report and financial statement and budget report. London: The Stationery Office. International Monetary Fund (IMF) (2010). World Economic Outlook: Rebalancing Growth. New York: International Monetary Fund. Mas, M. & Stehrer, R. (2012). Industrial Productivity in Europe: Growth and Crisis. New York: Edward Elgar Publishing. Nelson, et al. (2002). The Link Between Growth Management and Housing Affordability: The Academic Evidence. Brookings Institution. Newell, G. & Sieracki, K. (2010). Global Trends in Real Estate Finance. New York: John Wiley & Sons. Nwogugu, M. (2011). Risk in the Global Real Estate Market: International Risk Regulation, Mechanism Design, Foreclosures, Title Systems, and REITs. New York: John Wiley & Sons. OECD Economic Surveys (2011). OECD Economic Surveys: United Kingdom 2011. London: OECD Publishing. Saleh, N. (2010). An Anatomy of the Financial Crisis: Blowing Tumbleweed. New York: Anthem Press. Stoscheck (2011). Guide to Global Real Estate Investment Trust CRC 2011. London: Kluwer Law International. Read More