What does Brexit mean for UK residential property markets?
The referendum vote on our 43-year relationship with EU neighbours has now been decided, leaving behind a potentially long and drawn out unstable chapter for UK property markets. Polls indicated a closely fought battle between both camps since the beginning of 2016, but, thorough briefings to assess consequences are only now taking place in the wake of Brexit. Here we discuss the implications of Brexit for London’s residential property market, and the potential challenges and opportunities that must now be deliberated.
For those that feared Brexit ahead of June 23, a potential decline in funds and investment in UK property - both nationally and internationally - was a major concern, but one which many had predicted for months. Referendum jitters delivered early blows to GBP, EUR and USD exchange rates, with big fluctuations in the penultimate weeks caused by polls and plain guesswork. Economic confidence dipped as a divide widened between the remain vote and a determined Brexit following. This dip had a clear impact in UK commercial property markets, with a 31% transaction decreased in Q1 across the country compared with Q1 2015, and an 11% fall in London as activity stalled.
According to a June report by the Royal Institute of Chartered Surveyors, 80% of its members cited uncertainty as a big obstacle for current property investment, and a so-called ‘Brexit bounce’, however, uncertainty and a subsequent fall in the value of sterling has set the stage for market corrections and an attractive environment for international property investors. In the final week ahead of the polls, homes across the UK have been bought in record time.
Impacts of Brexit
17 of the UK’s biggest housebuilders raised concerns that a global drop in confidence will make it harder and more expensive to build new homes, exacerbating the housing crisis, particularly in the South East. Housebuilders’ shares have now fallen sharply, and an upcoming shock in the commercial property sector is predicted.
Firms including Barratt Homes, Berkeley Group and Notting Hill Housing also stated that the supply chain will be badly affected, and the delivery of materials like bricks would be jeopardised. A lack of funding for new homes could curtail the first-time buyers’ market even further.
Brexit has set the stage for an immediate end to the UK property price boom, according to estate agents and analysts. House prices could drop by 25%, according to rating agency Fitch, or by 18%, as stated by UK Chancellor George Osborne. Early indicators suggest that a price reduction will draw in international investment, so any drop will be short lived. House price growth in London markets, where growth has been running at a steady 13% annually, are expected to feel the biggest shocks.
Diverging views have emerged on the UK’s long-term investment future: on the one hand, Britain’s status as a financial centre could be diminished which will affect global investment, but Brexit campaigners suggest that UK firms, including developers and builders, can forge stronger relationships outside the EU to kickstart a Singapore-style ‘supercharged economy’ - the UK’s widening trade deficit with the EU makes this point even more prevalent in 2016.
The UK’s booming student housing market and buy-to-let market may both feel a pinch, depending on a potential dip in international student numbers as a result of financial uncertainty and an increased stigma toward non-national persons entering the UK.
The remnants of a divided UK will still be felt, and Brexit may lead to looser ties across the EU, and a lack of confidence in the EU project. What does remain certain is that current UK housing issues, and the growing issue of housing allocation, will need to be addressed with bold housing policies that meet the concerns of the nation, for example U-turns in the provision of social housing.
A short-term immigration surge before the UK cuts the cord will place more pressure on the UK’s existing housing stock, but demands for housing in the long-term could cool as migration reduces, according to RICS. A dip in demand could also be driven by how many international firms choose to stay in London or move elsewhere - the current UK corporate tax rate of 20% is far more appealing than tax rates in Germany (30.175%) and France (33.3%) - particularly if the UK is able to negotiate a free trade deal while remaining outside of the block - but countries like Hungary (10% up to HUF 500 million) and Ireland (12.5%) may begin to vie for attention. What all this could mean for the UK housing market is an unstable period that may jeopardise London’s current pipeline developments financially.
Assess the biggest challenges and opportunities in a brave, new business chapter
Due to popular demand we will be hosting an event to discuss the financial aspects of the Brexit result and its effect on the Residential Development Market in the UK.
We would like to invite you and your colleagues to join us at this crucial event, which takes place a week and a half after the vote, on Tuesday 5th July, allowing our market experts to assess the consequences and prepare briefings. Will Brexit mean reduced flows of capital in Residential Property?
Our expert panel will brief delegates on the funding and investment markets in light of the result, so that those involved in Residential Development can plan accordingly. Christine Whitehead, leading Housing Economist from The London School of Economics will open the event, followed by a strong panel of market experts, developers, funders and investors, who will all speak against the backdrop of the referendum result.
This event sold out last year so book early to avoid disappointment.