Land-tied wealth

According to the Office for National Statistics, land accounts for £5tn out of a total of £9.8tn worth of net wealth, more than a half, at market value in the UK, which is the highest proportion among G7 countries (data for the US and the Italy were not available). Why does this happen?

Firstly, such investment strategy is conducted based on the tax system. When the returns from equities or other assets in the financial market are taxed heavily, it is wise for people to invest in land, as they receive continuous rents from land and can earn money from selling out their land in the future any time they want. Secondly, it is about the finance available. In the UK, people can get mortgage for “buy to let”, so it is more affordable for people to buy land than to buy similar value worth of other assets, such as equities. Thirdly, investment strategy is made based on the different return rates from investing in different assets. The US stock market is performing very well this year; however, the UK stock market is not that fascinating, due to the downside pressure from Brexit. Fourthly, the institutions love UK land as well. HNA has purchased many student accomodations in London, and other financial institutions also invest in student accomodations since the demand for accomodations in the UK is relatively inelastic, thus providing constant returns.

However, while more than a half of the total net wealth is concentrated in land, it means the economy as well as the financial system is very vulnerable to the volatility within the real estate market, since lots of loans and investment are concentrated in one single sector with a well diversified investment portfolio. Moreover, when so much money is concentrated in one sector, it is too hard for anyone to be certain that there is no bubble in this sector.

To conclude, the investment environment in the UK encourages investors enter the real estate market, and such concentrated investment is definitely to increase the economy’s vulnerability to the volatility in the real estate; moreover, it is impossible to say there is no bubble in the UK real estate market.