The UK real estate market is currently in a downward trend, and there are no signs the situation will change in the short term, says Walter Soriano, CEO of London-based WSLM, a real estate firm specializing in UK real estate. Surveys by various research firms point to prices continuing to fall during October, and data coming in from builders further supports this.
Sales are down from 0.78 a week this time last year, to an average of 0.48 in the last six weeks. Cancellation rates have jumped to 27% in the past 6 weeks, up from 21% in the 12 weeks prior to that. The UK's largest builders have all seen their shares drop due to the current market situation.
At a glance, it would appear that the market is headed towards a slump with more bad news on the way. But in reality, this also creates significant opportunity, if you know when and how to look, says Walter Soriano.
One segment that can benefit tremendously from the situation is buy-to-rent. The slowdown in new constructions, coupled with the increase in interest rates, is leading to slowing sales and larger cancelation rates as less people buy new properties or trade up. This in turn will put pressure on rental rates as more people look to rent instead of buying. Soriano sees this as a strong opportunity for investors and even private buyers seeking to hold property for more than a short term.
Investors will enjoy the benefits of buying at lower prices will enjoying higher income from renting the property. The market is expected to rebound after the current economic slump, and therefore the property itself will appreciate over time.
First time buyers Private buyers who are purchasing real estate for the first time can also find opportunities. The drop in prices has made the equity/debt ratio more favorable (a smaller mortgage is needed to complement the equity compared to when the prices where higher), which in turn translates to the ability to buy bigger and/or more lucrative property with the same equity, Soriano explains.
The news, however, isn't good for many. No one can predict at present how long or how deep the downturn will be. And the real estate downturn is not an isolated event it is part of a broader economic issue. House prices are falling now because interest rates are rising, which in turn is because inflation remains high. In turn, homeowners spend less because they feel less well-off, fewer house moves mean spending on furnishings and other goods falls, and banks start to be stingier about lending because they worry about bad debts building up. So real estate during the downturn is not for everyone.
Soriano says the hope is that we can avoid a repeat of the previous crash because the proportion of people exposed to falling house prices is lower than it was during 2008, while a higher number of mortgages are on fixed rates, compared to the previous crisis. Finally, employment is one of the main factors to watch closely to see whether the downturn remains manageable or becomes a full-blown crisis. People with jobs keep paying their bills and the default rates remain lower. If unemployment jumps, so will the defaults and repossession rates.