When we try to reach the root cause of our cooling real estate, we must consider some critical factors. Many people think the pandemic is responsible for the cooling real estate in London. Is that so?
To answer that, Walter Soriano WSLM deep dig into the cause and analyze what makes this robust market soar during the pandemic to relax after it.
For that reason, we will break down the answer for you into two major parts:
- Unrealistic Return Expectation During Covid-19
- Fake Buyers
Unrealistic Return Expectation During Covid-19:
During the pandemic, when the real estate market is soaring because of low mortgage rates, many people jump into the market with higher expectations for return. They seem to have this expectation that makes them believe the interest rates will remain that low forever.
With unrealistic return assumptions, people buy houses as a tool to invest. When the market corrects it with the central bank increasing rates, the expectation for return falls rapidly, making people sell real estate at low prices.
Which disturbed the market with consumer confidence declining while causing an increase in supply with decreasing demand cooling down the real estate.
Fake buyer is a very exclusive term with many meanings; in our case, we refer to buyers that cannot buy real estate but are still pledged with a sales deed.
During the covid-19 pandemic, many people wanted to have bigger homes for more space to live because of quarantine obligations. This motivates people to buy bigger houses, and with low mortgage rates, they decide to buy them with the money they don’t have.
Initially, this causes a surge in demand, but when people fail to comply with the payments, they end up getting the real estate in courts and banks, causing a sudden decline in the real estate market.
Moreover, another reason for that cause is the sudden rise in inflation that was unexpected for many individuals causing people to change their minds or get out of real estate deeds.
Inventory Shortages And Increasing Interest Rate Spree | WSLM Walter Soriano’s Take:
Besides the direct impact of covid, there are some other factors that WSLM have analysed that has to cause London real estate to cool. The pandemic also causes these factors, but they worsen because of higher inflation, changing geo-political situations and international trade policies.
- Inventory Shortage
- Increasing Interest Rate
Inventory shortages are due to supply constraints. Contactors cannot complete their projects on time because of inventory and raw material shortages for real estate projects.
This is leading real estate investors to hold their money for the time. Moreover, it is also making households wait until the real estate market gets better.
Increasing Interest Rate:
The increasing interest rate is causing the mortgage rate to rise, making real estate expensive for people who want to use mortgage facilities.
The interest rate is also declining in real estate investment as it will now cost more to get money from financial institutions for real estate projects.
WSLM Walter Soriano | A Brief Over View Why London Real Estate Is Cooling:
Walter Soriano WSLM presented a brief overview of why real estate is cooling in London. The mentioned reasons are driven by the analyses of the real estate market in London and globally.
We have discussed the direct and indirect contribution of the COVID-19 pandemic in this crisis and how it affects it in different ways.