Brexit: Silver Lining for Investors
Whilst the last few days have remained somewhat tumultuous, the United Kingdom and indeed the on-looking world begin to adjust to the outcome of the U.K.’s landmark and hitherto unprecedented decision to leave the European Union.
We have taken a moment to reflect and consider what this means for London property investors.
The Property Market Holds steadfast
A slump or crash in the property market is unlikely comments CBRE and other authorities on global real estate markets whom also predict a strong market relatively unaffected by any long-term negative impact. Global equity markets reacted fervently on announcement of the decision, with immediate slumps in stocks across the worlds markets, and the pound falling to a 30-year low. That said, by the end of the day, the FTSE 100 had closed at 6,163, down 2.75% and whilst equity markets continue to remain uncertain as a result of the apparent political instability we’ve seen worse and recovered.
Demand outstrips Supply
Property prices are essentially driven by supply and demand, and demand has outstripped supply in the U.K. for more than a decade. In 2015, a total of 156,140 homes were built in the U.K., which needs to maintain output of new homes at 250,000 per annum to meet increasing demand.
Planning laws and land restrictions will of course continue to hinder the construction of new homes and demand will continue regardless of any potential reduction in immigration levels. It’s possible that a potential restriction on the free movement of labour between European countries will result in fewer homes given the supply of construction labour from outside the U.K.
Therefore, a further reduction in supply will inevitably fuel the existing housing shortage.
Prime Central London remains a Hotspot
As was evident following the 2008 financial crisis, an opportunity has arisen for overseas investors in the U.K real estate markets, particularly prime central London.
A weak pound drives investment at attractive prices and could possibly result in an increase in demand, thus driving a rise in house prices, with assets steadily increasing in value whilst still being relatively cheap to buy for overseas investors.
The London rental market will likely see an increase in demand as tenants opt to rent rather than purchase in a currently turbulent market.
Uncertainty and unrest will continue for a time. Markets need to stabilise and it is likely that the Bank of England base rate may decrease for the duration. In the political landscape, instability in both camps will settle in due course with new candidates for leadership forthwith. Although dates are yet to be set for activation of Article 50 and exacting negotiations on the U.K.’s departure from the EU it is most likely that a phased, steady departure will take hold.