American Market
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Can UK property avoid American market?
Economic conditions are often quite alike on both sides of Atlantic. It is true that when the American real estate market faces a crisis the real estate investors and agents in Britain keep their finger crossed.
Any change or disaster in the American real-estate market is likely to effect Britain’s real estate investment. The Homeowners and buy–to-let owners are quite apprehensive about the property market after the latest crash in US property market. There is a say that "when America sneezes, Britain catches a cold", which confirms that conditions in Britain will not be favorable to property owners.
The overseas market of US economy covers a major part of Europe especially UK. So chances of induction effect are assumed to be very high. Any pitfall in the US property market are likely of effect its partners, though not to the same extent. The dynamics might vary in each country.
Mervn King the governor, Bank of England has assured that sub-prime market in Britain is unlikely to be affected in the same way as the US market. This statement was an assurance to investors and agents. Property agents and owners are feeling a little relieved after hearing this news from a person of his stature who is quite aware of the international overseas conditions and has the required economic data to confirm this.
He raised the issue of the condition of mortgage owners in Britain at the House of Commons treasury select committee. According to the reliable data available to him he confirms that mortgage holders in Britain are in better position in terms of their property valuation and this will give them the strength to survive any economic correction that affects the property market.
He declared: "If house prices were to fall by a relatively modest amount, then I don't think the consequences would be very severe because there would only be a relatively small number of households in negative equity."
The Governor of Bank of England is one of the decision makers of the body that determines Britain’s market rate of interest. Apprehending a market crash this body will take up certain corrective measures like lowering the interest rates. A statistical analysis of the Nation’s Housing Survey reveals a slight slowdown of the market which may not be the case now.
The BBC news held interviews with two property experts who hold opposing views to MR. King. While these experts suggest that the future market is not favorable Mr. King declares that Britain’s property market is till quite robust and is capable of staying the same in near future.
According to many others like Jonathan Davis, Chartered Financial Planner, HousePriceCrash website strongly believes that US property market was driven by buy-to-let investors who have primarily contributed to pulling their own market down. He believes that UK will also face the same situation as the supply overpowers the market demand shortly from now.
Jonathan Said, economist, Centre for Economics and Business Research contradicts this view. He observed and concluded that trends in UK demography and building markets will make UK market stronger and crash proof.
He cited evidence from 2005 house building records. 2005 saw the highest number of house constructions in last 15 years i.e. 193,000. This figure was still only 75% of the required construction to facilitate a reduction in the inflation of house prices to 1%. He felt that “"To induce a crash would require far higher levels of construction." He also pointed out that reduction I the size of average households and immigration are the key factors contributing towards pushing up the demand.
In a demand driven economy the demand for property will never fall and it is quite reasonable to assume that this buy-to-let boom is just safe. If house price demand exists in the economy then demand for rented property will never fall.
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