Perhaps the country’s hottest topic it would be remiss of us not to give our point of view on Brexit from our experience of working with stakeholders of the UK residential market on an everyday basis both in the UK and globally. The two political arguments seem to be either; 1) the UK is much better off within the warm embrace of the European Union and the unknowns are just too risky and conversely; 2) the European Union is too costly and too prescriptive and therefore the UK is better off out.
However, I think both camps agree that the UK is one of the world’s largest economies in its own right and ultimately even if the UK does choose to leave the European Union after potentially a long protracted negotiation, the UK will ultimately agree some type of trade agreement with the EU – if for no other reason than they sell us more than we buy from them. And that the UK is a great place to invest with extremely strong growth prospects.
Politics aside, the question for our market has been what impact would a potential Brexit have on demand for residential property? When answering this question I think we have to look at three markets, namely owner occupiers, local and international buy-to-let investors.
For both owner occupiers and UK based buy-to-let investors I do not consider this group of people will suddenly take the rather drastic position of either not wanting to own their own home and/or own a buy-to-let investment in the country which they live in because it is no longer a member of the EU. There is no doubt the major concern for international investors will be what sort of relationship the UK will have with Europe post Brexit.
Given that the UK exports within the EU account for around 44% of all exports and conversely about 53% of all UK imports arrive from the EU, it is very difficult to imagine a scenario where member states of the EU take a punitive approach to ‘punish’ the UK for leaving the club – particularly whilst the global economic situation is less than certain. Additionally, since the UK is the 6th largest economy in the world it is even more difficult to really imagine the UK slipping into global obscurity and falling from the world’s economic conscious.
I suspect international investors are likely to all come to the same conclusion, either within or outside of the EU the fundamentals of the UK residential property market look pretty good. Furthermore, the factors which attract international investors to the UK in the first place – its vibrant cultural life, world class universities and honest legal system will arguably not be affected by a potential Brexit.
So I guess the real question is not how will international investors react to a potential Brexit, but in the short term, what might be the consequences:
- Depreciation of the Sterling – some experts have expressed a view that the pound may depreciate by up to 20% should the UK Brexit. From an international investment perspective assuming you believe in the long-term fundamentals this will most likely create a buying opportunity.
- Inflation – some experts have warned that inflation may increase by up to 4%, and whilst I appreciate inflation will impact interest rates, this is also likely to impact prices and increase rentals.
- Impact on labour force – a significant amount of the workforce within the building industry come to the UK from within the EU, it is difficult to see a situation where the UK government wouldn’t grant work VISA’s to these skilled migrants, especially when they are contributing to the economy. However, in the event this did not occur supply will become even more constrained on a market which is already finding delivering new product tough going.
Ultimately from our perspective, either in or out, the EU referendum is a short-term distraction and represents a good buying opportunity for smart money (particularly for international investors). What makes Britain successful in the first place is not changing irrespective of outcome from the vote and, as in any investment market; a period of uncertainty creates clear opportunities to make gains for savvy buyers.