Then, I was writing about the art and science of property valuations. Yet six months on, this same point has perhaps become even more pertinent.
At present, the national media is awash with figures about soaring property values and record levels of transactional activity. Homebuyers are abandoning city centres in favour of greener pastures in rural areas, while the stamp duty holiday has galvanised a huge surge in listing and enquiries across the country, all resulting in prices increasing sharply.
However, the fixation with house prices is problematic. Focusing too heavily on a single indicator will belie the great variation that exists between different regions and subsectors within what is a complex market. Moreover, these catch-all statistics can also overshadow the vital fundamentals that shape property markets on a macro and micro level.
The fundamentals of property markets
What factors shape property markets? What governs supply and demand? What, or who influences the trends that affect both consumers and businesses in the real estate space?
These are, of course, crucial questions. And it is important for professionals within the property industry, particularly those just embarking on a career, to have a firm handle on such fundamentals. After all, real estate markets are hugely diverse, so to understand them on a regional or national level, one must have a command of social, economic and political fields.
It is perhaps most logical to begin by establishing the main actors who participate in the market.
There are several broad groups at play: owners (who own and occupy the property); investors (who own but do not occupy the property); renters; developers and renovators; and facilitators, which includes agents, lawyers, governments, lenders and any other body that is involved in the transacting of property.
Each group has its role to play in the ever-evolving state of any given property market. Crucially, we must appreciate that the actions of any one group will likely have a significant impact on the others, and indeed on the market as a whole.
This point was made obvious when the UK Government introduced the stamp duty land tax holiday in July 2020. Here, state interference in the market had a major effect on buyers, sellers and facilitators – demand and activity skyrocketed, with prices rising sharply, in the short-term at least.
Property’s unique characteristics
When understanding the way property markets change over time, we must also consider the unique characteristics of property itself. For one, transacting in land and real estate is both a lengthy and costly process.
For example, data shows that it takes an average of 197 days at present to sell a residential property in the UK (from instruction to completion).
There are then solicitor’s fees, valuation fees, legal fees, agent fees, electronic transfer fees, removal fees. In short, buyers and sellers will typically incur fees amounting to thousands of pounds in the transaction of a piece of property.
The fees and time involved in buying or selling property vary from country to country. However, it is rarely a quick or cheap process – this makes real estate markets unique to other financial markets.
Changing demands around an immobile asset
Immobility is another of property’s unique characteristics. Put simply, a property or piece of land cannot be moved – it exists in a single, permanent location. Yet demands change around property, which has consequences to the balance of the market and the valuation of property.
Again, this is a point that has become clear during the Covid-19 pandemic, with data showing that UK homebuyers have been increasingly searching for properties in rural areas due to the rapid rise of remote working combined with the lockdown restrictions that have effectively closed down towns and cities.
An abrupt shift in demand will then reshape the market as a whole. Buyers are looking to move to the countryside, but the highest volume of housing exists in urban locations, meaning there becomes an acute shortage in supply. Again, it is the unique quality of immobility that makes the property market different to many others.
Some of these points might seem self-evident. However, one must appreciate the complex interactions between different factors, players and socio-economic influences to fully understand the make-up of the property market.
Having jolted and shaken almost every industry sector, the pandemic has reaffirmed the importance of understanding market fundamentals in order to make sense of what is happening and, indeed, what might happen next. This is certainly true of the property market – as such, Covid-19 will likely inspire many real estate professional to go back to basics and hone their industry knowledge.
