Essay: Investment in property during Brexit

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CHAPTER 1

INTRODUCTION
1.1 Background and Problem Statement
Investing in property is a big business that can become highly profitable. There are main two types of property investment, which are buy-to-sell and buy-to-let. Buy-to-sell investment involves property development activities such as renovation and re-lease or selling of existing buildings in order to make a profit in short-term (Congress Ltd 2018). On the other hand, buy-to-
let investment includes purchasing a property to renting out with long-term goal of rental income and capital growth (Ibid). In the UK, real estate is significantly important for feature of the economy. UK property market is the second largest in Europe after Germany and according to Ipf.co.uk (2017) research; the commercial property market in the UK has a market size of £883 billion in 2016. Moreover, foreign investors play an important role in the UK’s property market, especially in London. In 2012, foreign companies and
individuals invested nearly £20 billion in UK real estate market (Ibid).
1.2 Business Opportunity Identification
There are many opportunities investing in the UK property. First of all, UK population increases by 0.8% per year, therefore, rises in immigration and population UK faces shortage of housing supply (ONS 2017,e). Secondly, limited available lands and policies designed to protect green spaces has increased value of the property. As a result, demand of house increases faster than supply, which leads house price to go up in the UK. Another reason is that the UK is part of European Union (EU) and has a strong and high growth of economy compared to EU countries (Brianchon 2017). Therefore, strong economic environment, favorable property taxes, growing property values and increasing rental market gives an opportunity investing in the UK property (Bartonwyatt.co.uk 2018).

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On the other hand, there are some problems increases uncertainties to invest in the UK property market. Firstly, increasing number of local and foreign investors in property, UK now facing shortage of housing supply, reasons include rapid population growth, competing land use, migration and increased property owners (Kollewe 2017). Therefore, UK government has already started to tackle this housing crisis by toughening up buy-to-let mortgages and rising stamp duty land tax for more than one property owners (Ft.com 2017,a). Another problem is that, since UK has decided to leave EU members, uncertainty of housing market has increased and prices of houses has decreased such as London by 15% (The Guardian 2018). Therefore, influence of the UK property market will largely depend on definite outcome of the negotiations with the EU. Overall, problems that mentioned such as tax concerns and uncertainty of Brexit negotiations will be important factor to identify whether property development business in the UK will be profitable.

1.3 Justification of Research
Justification of the research includes business, academic and personal motives as follows:
1.3.1 Business Justification
The awareness of housing in the UK combined with increasing value of property especially in London region. Moreover, Britain’s decision to leave EU has decreased London house price and at same time value of the pound sterling has weakened. Therefore, decreasing house price and weak pound sterling value against dollar will benefit foreign investors. In addition, London
has a strong demand on housing and market forecast is expected to return to growth, this gives opportunity investing in London houses. Overall, growing demand on housing and in strong economic environment with favorable tax system gives attention to many investors. Therefore, developing property in London market such as refurbishment, conversion and new build apartment
by adding value could be a good potential business opportunity.

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1.3.2 Academic Justification
In order to develop a successful business, it is important to understand the current market, classify target customer and deliver product or service in order to meet customer needs (Johnson 2000). Thus, drawing a particular business plan for property development in the UK, clear understanding of housing market is required by analyzing house price determinants, economical drivers and factors that influence to the market.
1.3.3 Personal Justification
This research will give opportunity to gain understanding and increase knowledge of UK housing market in the perspective of property development business. In addition, the researcher is planning to implement this proposed project in real life practice. Therefore, this could be the greater benefit to access insight of growing real estate business environment in order to practice and cope with property development business in the future.
1.4 Aim and Objective
The aim of this research project is to explore UK property market and create a business plan considering to property development in the UK.
Objectives:
– Opportunity of investing on the UK housing market will be identified and appropriate business plan will be developed.
– Information will be extracted from available secondary data on housing market, economical and demographical statistics and primary
data will be extracted through interviews and survey.
– The data from both sets will be analyzed in order to create a business plan.
– Assessing impacts of risk factors into a business plan as an awareness and defining the exit strategy.
– Lastly, identifying main time-management strategies in property development.

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1.5 Definition of What Make the Project Entrepreneurship or Innovation Related
This practical project is more entrepreneurship related and at the same time innovation related. In order to define what makes this project entrepreneurship and innovation related, theory of entrepreneurship presented and correlated to the project. There are no specific definitions of Entrepreneurship, which meanings arise from diverse viewpoints of many scholars. The theories of entrepreneurship are grounded on economic factor, sociology and psychology understandings and some look at it from the management perspective (Bula 2012). According to Shane and Venkataramn (2000), a concept of entrepreneurship occurs when opportunities are recognized and exploited to bring about fulfilling the desires by the formation of new product or services in the society. Moreover, strong characteristics such as risk-taking, pro-activeness, innovativeness and resource leveraging help them to be recognized in business industry (Morris et al. 2002). The business idea is developing a property that includes refurbishment, new build, conversion and so on and many entrepreneurs have practiced this. In property development, finding property in right location and investing your money with the hope of profit is a risk taking, which indicates this project is more related as entrepreneurial. Looking at on management perspective, this practical project can be considered as innovation related, because leveraging resources is crucial aspect in property investment. For instance, using a solicitor, builder, and letting agent on proposed project leverages your time and their knowledge. Moreover, in housing market, proactive identification and exploitation of opportunities for buying property and finding profitable customers through innovative approaches is key activities of this project.
1.6 Research Structure
This research projects is structured into five distinct chapters that will address different parts of the project. Firstly, introduction gives a background to the issues of housing in the UK and presents a brief overview of the housing market while considering property investment business by defining the possible opportunity. Then, aims and objectives of this research identifies and further defines the relationship as to what makes the project entrepreneurship or innovation related. The second chapter presents a complete literature review related to the project, discussing key aspects of the UK property market with the factors that affects price of the house. The third chapter describes the methodology of data collection for the research project, which includes research philosophy, approach and method of data collection followed by data analysis. The fourth part presents the analysis of the findings from both primary and secondary data. Then, these findings are used as a market research and basis for the development of the business plan. The fifth chapter involves more detailed information about the business and its structure, which creates business plan for this practical project.
Finally, a conclusion will summarise the main points of the project and by reflecting of learning points, limitation of the research will be presented.

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CHAPTER 2
LITERATURE REVIEW

The housing market also known as the property or real estate market, which different stakeholders interact with business activities of buying, selling, renting the property and building mainly for investment purposes. The housing market is one of the most critical markets in which people as everyday consumers take part in, simply because housing is a requirement of every human being which is the largest consumption good that is purchased. In this literature review part, first researcher will study and analyze determinant of the house price. Secondly, current housing market of the UK from 2016 will be explored and how market has changed. Lastly, literature review will show affect of the Brexit vote into housing market and affect of demographics into housing prices and supply.
2.1 House Prices and Its Determinants
In order to understand the current house market prices in the UK, first have to find out which factors affects the housing prices or what are the determinants of the house prices in general. Looking at to previous research papers on the determinants of house prices, housing is very specific assets compare to other assets, because it can be used for two reasons, first for consumption and second as investment good (Davis and Zhu 2004). In the long term value of services provided by the property should be equal to the equilibrium prices of a household, for example resale value and future rent. In the short term the price of the houses can change fundamentally depending on the volatility on the housing market and among other things (Leung and Chen 2006). The vast majority of research papers distinguish the house market with three main types of factors, which are funding arrangements, geographic and institutional factors and macroeconomic drivers (Ibid). Following figure 2.1 below shows all the possible factors affecting housing market.

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Figure 2.1: Possible factors affecting housing market

(Swank et al. 2002)

2.1.1 Macroeconomic Drivers

The macroeconomics concerned with large-scale of economic of the country, such as interest rates and national productivity. Gerlach and Peng (2005), describes changes in the short run of the housing prices is affected by the fluctuations in the income, interest rate, change in price of land and the change in the housing quality. According to Hilbers (2001) the most important factor that affecting the UK house market is the disposable income. Moreover, the UK housing market is mostly influenced by number of housing supply, real mortgage rate and household income (Ibid). Most of the academic researchers mainly interested in the role of interest rates in housing market and the affect of the credit market on the economic cycle. According to Favilukis et al. (2010), the main reason for the dramatic increase in housing prices is the highly available credit and a lower payback strategy has increased the house prices and demand. In addition, other empirical studies have suggested that high mortgage approval rates, easy credit terms, and including lower payment rates caused large movements in the house market (Khandani et al. 2009). Calza et al. (2009) have found out that the affect of the monetary policy controls by the central bank on the housing prices and investments on housing is much greater in the nations with developed housing markets. Swank et al. (2002) examines how the changes in the mortgage interest rate and affects the housing market, as well as how the change in the taxation implemented by the government to lending institution affect the income of the mortgage industry. According to Swank et al. (2002) every new house buyer and mover faces different types of users cost, because each of them has different housing needs, different income and want different types of housing. There two segments of the housing market for the consumers that are first time buyers and home-movers. These two segments closely interlinked and determined by the current prices in the housing market. As the number of starter and movers increases dramatically the demand for the housing will increase, which means the price of the house will rise (Swank et al. 2002). As researcher mentioned at the start of this project that houses can be a financial investment for the consumers or investors. Therefore, if the return from the house investment taxed by the government it is likely will not be attractive to investors depending on the mortgage interest rates. Sterk (2010) examines the affect of macroeconomic decline on housing prices. Author’s idea is that the changes on the house prices have who effect on the labour market, because house is very important for geographical mobility. Sterk (2010) shows with evidence that the negative change in the house prices negatively affects the labours matching with the right jobs. Then author finds out that people who have jobs offers from different geographical location can only accept it if they are happy to relocate to different area.

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2.1.2 Housing Bubbles
When reviewing the literature, there are to many definitions of bubble, which
many of these definitions are standard. According to Stiglitz (1990), bubbles
is just type of speculation and this is not supported by any type of
fundamental changes, the only reason for higher prices of the assets
because investors believe that the price will be much more higher tomorrow.
Housing bubbles generally in the face of limited supply start with rise in
demand, which takes a relatively long period to replenish and increase (Ibid).
Therefore, investors enter the market, further rising up demand. Lind (2009)
states that usually dramatic increase in the asset prices followed by the
dramatic decrease. Identifying and forecasting the housing bubble is very
difficult to model, but researches have used number of alternative
approaches. Ayuso and Restoy (2006) practiced two alternative approaches
in order to forecast the housing bubbles. First, compare time varying discount
factors and observed price rent ratios. Time varying discount factors are
determined by the user cost of owning a house, which can be decomposed
into property tax, mortgage interest, maintenance costs, an additional risk
premium and tax deductibility of mortgage interest payments. The second
method differentiates the housing prices with the fundamental economic
values and academics find out that in the long run there is a relationship
between macroeconomics factors and housing prices (Ayuso and Restoy
2006).
Overall, there has been many number of research related to the
determinants of house prices in different countries. There is also enough
research done regarding to housing bubbles. However, little attentions has
been given to possible affects of Brexit on future housing prices in UK and
what determines the volatility of house prices. Therefore, researcher follows
exploring current housing market of the UK from 2016 and how market has
changed.

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2.2 The UK Housing Market
In the UK, the supply of housing includes privately owned and occupied
properties, privately rented and local authority rented housing and property
managed by housing association. According to Office for National Statistics
(ONS 2017,a), owner-occupied household is 65.7%, privately rented is
16.51%, housing association is 9.50% and local authority is 8.51% of
household. Housing crisis in the UK has been for many years, which house
prices are increasing and families cannot afford buying a house specifically
people living with monthly wage. Moreover, unaffordability of owning house
has increased private rented homes by 69% since financial crisis (Doward
2016). In addition, young families are renting houses and flats and wondering
if they will be able to afford a home on their own. Subsequently, nowadays
this issue has been easing mainly by the UK government, which they are
promoting the ‘Funding for Lending’ and ‘Help to buy’ schemes and so on.
According to Bank of England, the ‘Funding for Lending’ scheme is designed
to support by banks and building societies to lend more to households with
the extended period (Bankofengland.co.uk 2018). Moreover, the ‘Help to buy’
scheme helped first time buyers to own house with just a 5% deposit and
government lends up to 20% of the sale price and the rest financed by a
mortgage lenders on a repayment basis (Ferguson and Collinson 2016).
Government schemes to people with low income facilitated to buying houses
and demand on buying properties has increased significantly. Furthermore,
during the financial crisis between 2007-2010, house prices have decreased
by 16% and with the help of government schemes and the bank of mum and
dad has boosted greater demand on houses (BBC 2016).
However, with significant increasing demand on buying properties, the UK
government is stressed with shortage of housing supply since 2015.
Therefore, government has committed to fix broken housing market by
building and delivering a million homes by the end of 2020 and half million
more by 2022 (Gov.uk 2018,c). In addition, the government has produced
different range of tax relief schemes to get property developers building more
houses. According to Fraser (2017) UK celebrates exceeding yearly target,

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which 217,350 properties were completed in 2017 and this is an increase of
74% compared to 2012.
2.2.1 Uncertainty in the UK Economy
Brexit is the future withdrawal of United Kingdom (UK) from the European
Union (EU). The UK held a referendum on 23 June 2016 and 51.9% of the
participants vote to leave the EU. Thus, the UK government raised Article 50
of the Treaty on EU and expected to leave by 29 March 2019 (BBC 2018,b).
After the financial crisis, the EU referendum hit UK economy in 2016; pound
sterling dropped and there was increased in the inflation (Oecd.org 2018).
The outcome of the Brexit is unknown therefore until 2020 the UK economic
growth rate is uncertain. As it shown on figure 2.2 below, UK has highest
declining growth rate compare to other countries.
Figure 2.2: Economic growth rate of the UK

(Oecd.org 2018)
Before the Brexit referendum, everyone was expecting that British people
would vote against leaving the EU. Even all the third party surveys showing
that majority of people in the UK does not want to vote leave, therefore all the
investor was positive about the UK housing market and the prices was
increasing steadily (Ft.com 2018). However, after voting yes for leaving the
EU, UK economy hit by decline, which GDP dropped, productivity decreased,
price of EU import increased, consumer confidence dropped, sterling
currency rate decreased and so on (Oecd.org 2018). Therefore, the forecast

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on the quarterly UK GDP for 2017 decreased dramatically for the investment
banks, which is shown on figure 2.3.
Figure 2.3: GDP growth, quarter on quarter

(Ons.gov.uk 2018,a)
Due to the process of Brexit negotiations, there is no any academic studies
have been done yet regarding to UK housing market. However, there are
many news are publishing everyday about the affect of Brexit to housing
market. Looking at the table 2.4 below, in the year to May 2018 average
house prices in the UK have increased by 3.0%, which is down from 4.9% in
2017 (Ons.gov.uk 2018,b). Moreover, since mid-2016 the annual growth rate
has slowed and has remained under 5%. This is the reason that uncertainty
of Brexit negotiation stop people buying houses for short period of time.
Moreover, housing transactions has decreased past twelve consecutive
months of Brexit (Pwc.co.uk 2017). When it comes to house pricing, experts
say that the main impact of the vote has been in London, which previously
had been experiencing increase of house price record (Independent.co.uk
2018). As a result, in inner zone of London, house price are decreased as
much as 15%, which is the sharpest annual rate of decline since 2009 (The
Guardian 2018). Property investors are nervously awaits exit negotiations as
Article 50 is triggered. Nevertheless, it is essential to remember that other

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than Brexit there are many factors that can affect house price such as
supply, demand, interest rates and inflation.
Figure 2.4:Average UK house price (January 2005 to May 2018)

(Ons.gov.uk 2018,b)
The housing market is an important for future of the UK economy. According
to The Economist (2016) currently in the UK house market there are £11
billion active mortgages which needs to be paid, and 1 billion of this
mortgages have been lend to international people, this itself is big financial
risk for the UK housing market. According to Savills (2017), after the 2008
financial crisis the total value of the UK housing market have rise to 6 trillion
pounds and buy to rent customers increased dramatically and people started
to prefer south of England compare to north. The relevancy of the UK’s
housing market to the economy is very high, UK has the biggest housing
asset class compare to other countries (Ibid). There are more than 270,000
people working in the real state market. Every year UK economy benefits 96
billion pound revenue from the real state market, which is 5,5% of the GDP.
In total commercial properties in UK employs around 2.2 million people which
6.9% of the UK labour force. The studies done by the Savills (2017) shows
that best year for the UK housing market was 2015 because housing stock
hit the 6 trillion pounds. Even after the Brexit some investment banks see
potential growth in the UK housing market (Pwc.co.uk 2017).

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2.3 The UK Housing Supply and Demand
Most of housing crises are caused when supply and demand is significantly
out of balance. In microeconomics, supply and demand is a simple economic
principle that explains price determination in a marketplace (Hayes 2015).
Therefore, relationship of supply and demand impacts the housing market
and the cost of the property. For instance, the prices of property tend to rise
when there is a high demand for properties in a specific area (Sullivan and
Gibb 2008). On the other hand, the prices of houses tend to fall when there is
no demand for properties due to a weak economy or an oversupply of
properties is available (Ibid).
2.3.1 Housing Supply
In order to understand the UK housing demand and supply, first we have to
understand what are the variables of supply and demand and which of these
variables have huge impact. According to Belsky (2009), the variables of the
demand for the housing are demography, credit availability, incomes, price
expectations and interest rates. On the other hand, variables of the supply of
housing are; government management structure, land management and
planning, subsidies by the government and tax system (Ibid). The volatility
level of the UK housing market is very high. Barker (2014) claims that the
reason for the high level of volatility in the UK housing market are the
mortgage oriented house ownership, high level of regulations, and inelastic
housing supply. Although other factors are involved, house building is the
main driver of change in overall housing supply. According to Barker (2014),
UK government’s house planning system does not work effectively and
housing supply is slow compare to the current demand in the market.
According to National Statistics, England’s net additional house supply
reached a latest peak of 223,530 in 2007 and then dwellings decreased to
124,720 in 2013 due to economic downturn from great recession (Gov.uk
2017). Since then, net additional dwellings have improved to 217,350 in
2017, which is 15% up compared to previous year. However, this level is 3%
below compared to 2007 peak as this shown on figure 2.5 below.

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Figure 2.5: Trends in housing supply; England: 2000-01 to 2016-17

(Gov.uk 2017)
The supply for the housing is elastic, which means that, the changes in the
price and demand do not really affect the supply (Sullivan and Gibb 2008).
However, inelastic supply causes large swings in the housing prices together
with increased demand (Ibid). According to Hilber and Vermeulen (2015)
countries supply elasticity is negatively correlated with house price volatility.
Which means countries with high level of elasticity has much more volatility
in the housing prices. The UK government local housing programmes are
failing and the housing market is dependant on the private house builders
and small businesses (Hilber and Vermeulen 2015).
By building more houses do not solving the UK shortage of housing supply,
because price of the houses are increasing and property developers are
building the homes for people who can afford (Ft.com 2017). According to
UK house price index, average house price in 2009 was £154,453 and
£225,956 in 2017, which 46.2% risen up for last 8 years (ONS 2017,b).
There are many reasons for increase of house price, such as population
growth, increasing number of households, income, and decline number of
marriage and so on.
2.3.2 Housing Demand
Compare to the housing supply UK’s housing demand increasing at high
speed every year, and deregulated mortgage market and favourable housing
taxes boost the housing demand even more, which this has been mentioned
previously. Hilber and Vermeulen (2015) have found that prices in the UK

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housing market doubles very often due to the high level of consumption. The
consumption has been increased to the high level availability of credits from
the financial institutions. In the relaxed or deregulated finance market, house
price raises, because people can purchase houses using their houses as
collateral. However in regulated credit market house prices will decrease,
because use of collateral will be much more less and accepted less by the
bank such as in Italy and Japan (Muellbauer and Murphy 2012). According to
Statista (2018), in the UK the average interest rate for a 2-year fixed rate
mortgage was 2.37 percent in 2014, however in 2017 mortgage rate reduced
to 1.48 percent. This statistic presents the average interest rates for
mortgages with a loan to value ratio of 75 percent on asset purchase such as
the property. Therefore, the key driver of the housing boom in the UK for the
high level of consumption through access to low interest rate mortgages.
The demographics will have huge impact and pressure on the future of the
housing market, for example UK one of the countries that have higher level
of birth rate in the Europe. The estimated UK population growth will reach
over 74 million by 2039 (ONS 2018,c). There have various reasons to
increasing population, but the main factor is due to longer life expectancy. In
the UK average life expectancy of a male has grown from 70.2 in 1981 to
79.2 in 2016 and female’s life expectancy has risen from 76.9 in 1981 to 82.9
in 2016 (ONS 2018,c). According to BBC (2017,a), UK government promises
to build 300,000 houses each year and targeted 4.9 million homes supply by
year of 2027. Most of the housing will be one-person houses due to aging.
The UK will have 65% of growing need for housing in future in South of the
country and will be the area with high level of housing shortage (BBC
2017,a). The growth in household numbers is not only the result of the
increase in life expectancy; there are also other demographic factors that
have effect on rise of housing demand. These includes:
2.3.2.1 Decline in Number of Marriages / Increase in Divorce rates
The increase in demand of house in the UK can also be largely clarified by
declining number of marriage and increase of divorce rates. According to the
Office for National Statistics (ONS 2017,c), marriage rate for men and

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women has declined dramatically from 80.5 in 1940 to 20.8 in 2014 per 1000
marriages. In addition, marriage age in the UK has increased from 28 in 1974
to 39 in 2014 (ONS 2017,c). Regarding to divorce rates, in 1950, the divorce
rate in the UK presented at 1.9 divorcing people per 1000 married;
comparing to 2016, divorce rate has increased to 9.3 divorcing people (ONS
2017,d). Therefore, these are the reasons for increasing in demand for
houses, which likely to leads to a rise in house prices.
2.3.2.2 Entry of Immigrants
Human migration is an important factor affecting on house price rise in the
UK. According to ONS (2018,d), 630,000 people immigrated to the UK in
December 2017, whereas emigrated people are 349,000, giving a net
migration figure of 281,000 people. This figure shows net migration has
increased compare to 2016 data and continued to add to the UK population.
2.3.3 Income
According to ONS (2018,e), UK average income is 26,672 pounds in 2016
and 27,300 pound in 2017, which this has increased by 2.3% compare to
previous year. McQuinn and O’Reilly (2007) states increasing income means
that on the basis of higher income, borrowers can borrow more and price of
the property offered higher. Therefore, the demand curve for housing will
move outwards with prices rising. Moreover, public confidence to spend
disposable income will increase by growth of the income, which at the same
time increase in public confidence leads to a rise in house prices, through
uprising demand (Muellbauer and Murphy 2012). According to BBC
(2018,a), London has the highest disposable income comparing to other
regions in the UK.
2.3.4 Unemployment
The UK unemployment rate recorded as 4.2 % in May 2018, which is the
lowest since 1975 (ONS 2018,f). Therefore, there are more people with the
possible to benefit a mortgage and enter the housing market. According to
Armstrong and Taylor (2009), low unemployment leads to higher wages and
this increases in demand for housing, thus higher house prices.

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2.3.5 Increased Buy-to-let Investors
Another reason for increasing house price is growing number of Buy-to-Let
(BTL) investors in the UK. Since Association of Residential Letting Agents
(ARLA) launched BTL loans in 1996, there has been enormous number of
investors entered to the market by aiming to get long-term rental income and
capital gains on their investment (CML 2017). According to Council of
Mortgage Lenders, BTL mortgage market represents 14% of the UK lending
(CML 2017). Moreover, by the end of 2015 there are 1.8 million mortgages
with a collective balance of 214 billion pounds (Ibid). Therefore, as more
investors entered on the BTL market, investors for long-term rental income
and capital gain own a larger number of housing stocks. In addition, this
decreased the availability of properties to purchase by individuals for owner
occupation.
2.3.6 Interest Rates
Many academics believe that between house price and interest rates has a
direct link which affordability of housing and public confidence affected by
changes in interest rates (Levin and Pryce 2009). In the UK, there are many
taxes applied when an individual buy or sell properties such as Stamp Duty
Land Tax (SDLT), Capital Gains Tax, Annual Tax on Enveloped Dwelling
(ATED) and so on. SDLT are applied when a person buys property or land
over a certain price. In the UK the current SDLT threshold is £150,000 for
non-residential land and property and £125,000 for residential properties
(Gov.uk 2018,a). In addition, SDLT rates are differs in certain property selling
prices, which the more expensive properties are sold, the more SDLT is paid.
Another tax is Capital Gain tax, which people pay when they sell their houses
on increased value or on its gain (Gov.uk 2018,b). Further to Capital Gain
tax, rates are varies from 10% to 28% on sales of every house. Overall,
increasing interest rates every year has an impact on growth of house price
and the UK government benefits from this tax, which brings cash for the
treasury.

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CHAPTER 3

METHODOLOGY

The aim of this chapter is to explain the research methods utilized to
examine the planned hypotheses for this research project, which is
developed from the literature review. According to Cresswell (2013), to
ensure the rationality of the research, adapted research approach is an
essential aspect. Saunders et al. (2009), has developed the research “onion”
model in order to illustrate the steps through that the researcher must cover
when constructing an effective research methodology. Research “onion”
consists of different layers, which allows researcher to progressively explain
their unique research strategy and design on particular objective (Ibid).
Looking at to Figure 3.1, this research methodology will be designed
following research “onion” layers such as the research philosophy, research
approaches, research strategy, time horizons and the data collection method
(Saunders et al., 2009). In this project, research philosophy of interpretivism
was chosen along with inductive method and using qualitative techniques for
data collection.
Figure 3.1: Research “Onion” Model

(Saunders et al. 2009)

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3.1 Research Philosophy
Philosophy is associated with views on how the nature works, whereas in the
academic subject, research philosophy deals with phenomenon, nature and
development of knowledge (Saunders et al. 2009). Since this project is about
entrepreneurship, understanding of research philosophy is important,
because it benefits the researcher to classify what research design,
methodology and strategy to be used in managing research (Johnson and
Clark 2006). Looking at to research “onion”, research philosophy forms the
outermost layer of the onion model.
According to Collins and Hussy (2003), there are four types of research
philosophies are used by researchers, which are Positivism, Realism,
Interpretivism and Pragmatism. In addition, positivism and interpretivism are
the most dominantly used in research environment. Easterby-Smith et al.
(2012), describes positivism philosophy emphasis on the viewpoint of social
phenomena and research findings are usually observable and quantifiable.
On the other hand, a researcher with interpretivism philosophy believes that
the reality to consists of understanding the world from subjective of people’s
experience (Collins and Hussy 2003). Moreover, they study the implications
of phenomena and human experiences in specific circumstances and try to
obtain and communicate these suggestions in vicarious and clear ways.
Therefore, for an entrepreneur this associated phenomenon benefits to
explore the opportunities and risks in reality (Berglund and Hellstrom 2002).
In addition, interpretivist researchers practice naturalistic approach of data

collection, such as interviewing or participant observation that relies on inter-
subjective relationship. This research has carried out under the interpretivism

philosophy as this research aims to study and perceive factors that affect on
investing property market in social reality. Interpretivism research philosophy
benefits researcher bringing to the fore the experiences and perceptions of
individuals from there own perspectives and apply strategies in to the project.

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3.2 Research Approach
Myers and Avison (2002) defines the research approach is “a strategy of
enquiry, which moves from the underlying assumptions to research design
and data collection”. The research approach is next layer of research “onion”
model, which discovers the design of the research project (Saunders et al.,
2009). According to Bryman and Bell (2015), there are two types of research
approaches are applied in business study that are deductive and inductive
approaches. Deductive research is top-down approach, usually begins with a
theory-driven hypothesis and then draws up research strategy to test
hypotheses and theories (Bryman and Bell 2015). On the contrary, inductive
research is bottom-up approach, begins with a research question and the
collection of empirical data, which are used to generate hypotheses and
theory (Ibid). In inductive approach, no theories or hypothesis would apply at
the initial stage of research and it is more open-ended and exploratory in
term of changing the direction for the study (Ibid). Moreover, it is important to
understand that when formulating research objective, inductive approach
does not imply ignoring or disagreeing theories. Therefore, in order to identify
patterns and relationships to build a theory inductive approach aims to create
meanings from the data set collected. Additionally, inductive research is
grounded on studying from experience and patterns, resemblance and
reliabilities in experience are identified in order to make conclusions (Bryman
and Bell 2015).
In this study, inductive research approach is employed since this project aims
to generate meanings from primary and secondary data collection in order to
identify opportunity on investing in London housing market. In addition, this
project does not analyse or apply any theories and hypothesis of UK housing
market.
3.3 Methodological Choice
According to Denzin and Lincoln (2005), there are two types of research
methods are used in a research study that are qualitative and quantitative
methods. Quantitative method is used to measure the problem through
collecting numerical and statistical data (Bryman and Bell, 2015). In contrast,
qualitative research is characterized by its objective, which helps to

25

understanding some social life aspects and rather than numbers or statistics,
its methods generate words as data for analysis (Denzin and Lincoln 2005).
Neuman (2003) notes that qualitative method of data collection and data
analysis is associated with application of inductive approach. Moreover,
qualitative research method involves an interpretivism and naturalistic
philosophy of research to its subject matter (Denzin and Lincoln 2005).
According to Domegan and Fleming (2007), objective of qualitative research
is to explore and discover matters about the problem on hand, as there is an
uncertainty about dimensions of research problem. This practice project is to identify and analyse the opportunity of a business model in the UK property market. Therefore, quantitative method is not suitable for purpose of this project which statistical information can be found by looking at to secondary data. Qualitative method is selected to provide factual information to this practical project. Moreover, qualitative data can be collected using unstructured and semi-structures techniques including group discussions, individual interviews, participations and so on (Bryman and Belly 2015). The advantage of qualitative research is open-ended questions are used and gives opportunity to participant responding on their own word rather than fixed responses (Denzin and Lincoln 2005). However, disadvantage of this method is sample size is usually small and takes a lot time to gather information from larger number of people (Ibid).

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