108: How does leaving the EU affect the UK property market?
Britain has voted to leave the European Union – but how will this affect the UK residential and commercial property market? We can only guess at what is to come but here are a few predictions:
- Residential prices may fall, but there could be more investment from abroad, particularly in London, as the pound weakens. Great for overseas buyers, but bad news for the UK buyer who was already struggling to get on the property ladder before Brexit.
- The London market may remain in its own bubble but confidence in property prices could see a drop across the rest of the UK. Uncertainty will be the key factor in price drops.
- Less affordable housing will be built as developers are concerned about interest rates, inflation and house prices generally. Again, not good news for the Brits and affordable housing quotas will reduce significantly.
- The rental property market could drop away as international companies move away from the UK and there is less demand to house foreign workers.
- UK commercial property will continue to attract substantial investment even after Brexit. It could actually boost commercial real estate prices as London is seen as a safe haven for investment and the weakening pound attracts foreign investment.
- Brexit may improve the commercial property market as the UK is released from EU rules and regulations including financial taxes. Investment in UK commercial property is still attractive, particularly where property is bought purely for investment rather than operational purposes.
- However, where commercial property is occupied by global corporations we could see break clauses being exercised and leases surrendered as UK operations are reduced and headquarters move out of London.
- The weakening pound could increase demand for UK commercial property, but a reduction in GDP (Gross Domestic Product) has a negative impact on imports and rental growth. The lack of free movement of goods, services and workers across the EU could also have a negative impact on property construction projects.
Nothing will change in terms of legalities as UK property law is jurisdictional and is not governed by the EU. UK lawyers will continue to apply UK property law and investors (domestic and foreign alike) will continue to remain baffled by the slowness and complexity of UK property transactions.
However, the real damage will be done by the uncertainty that we are currently experiencing as buyers put on hold the property deals that may have been done if exit from the EU was not looming ahead of us.
29 June 2016