Property market looks to the future following EU referendum

London terraced houses and apartments
Although others expressed uncertainty over the immediate future of the prime market, a report on Friday from Douglas & Gordon and D&G Asset Management suggested property values in London’s 'emerging prime' areas were 20 per cent cheaper in dollar terms than they were two years ago, following the fall in the value of the pound.James Evans, CEO of Douglas & Gordon, said, “For two years, the UK residential property market has faced higher bands of stamp duty, a reduction of mortgage interest relief for 40 per cent buy-to-let taxpayers and an additional three per cent stamp duty levied on buyers of second properties.“The governor of the Bank of England has said that he will not hesitate to take additional measures required to avert a recession by keeping interest rates low for longer. In this deflationary climate the yields on offer from residential property in certain parts of London will become increasingly attractive to investors.”On overseas investors, Andrew Monteath, from D&G Asset Management, added, “Ever since the build-up to the general election campaign last year, political uncertainty has dogged the UK and slowly weakened sterling against the dollar."“We think that the 'in-out' circus will spread to other countries across Europe over the next two years. Within a short period of time London property, which is now even cheaper in dollar terms after this result, will be viewed as a safe haven by investors.”Mark Posniak, managing director of Dragonfly Property Finance, said, "There will be a huge amount of hypothesising about the fate of the UK property market, but it's impossible to know the full ramifications of the Leave vote."How the Bank of England, the government, the financial markets and economy react today and in the weeks and months ahead will be crucial to how the property market performs."Caution, reduced transaction levels and downward pressure on prices in the months ahead are almost certain but we should not write off the property market."Despite the magnitude of the result, the structural supply issue underpinning the UK's property market may well prevent prices falling materially."Overseas demand may also increase on the back of the decimated pound. For many overseas investors, buying British property just got a lot cheaper."Short-term liquidity issues are possible, if not likely, among bank lenders and non-bank lenders that have bank funding lines. In the days and weeks ahead, banks and every other type of lender will be monitoring events forensically."With Leave winning the referendum, the appetite for risk will almost certainly reduce until we have a better understanding of what we're facing."Jonathan Hopper, managing director of the buying agents Garrington Property Finders, added, “The irony is agonising – that after voting so resoundingly to remain, London should see its property market decapitated by a victory for the Leave camp.“Prime central London property has already suffered more than any other market from the uncertainty unleashed by the referendum. With a quarter of the capital’s corporate rental market driven by the financial services sector, the convulsions being experienced in the City today will filter down to the property market within days.“Looking further ahead, the only sure thing is that we can’t be sure of much. The actual process of Brexit is unlikely to be quick or easy, but it’s the prolonged period of uncertainty that will accompany it that is likely to prove most toxic.“The blunt truth is that many investors – for whom property is a discretionary purchase – will sit on their hands until the dust settles. And no-one really knows how long that will take.“Optimists will point to the collapsing pound as a potential plus. London property will certainly become cheaper for overseas investors, but buying property is not like buying a holiday. No-one makes a long-term financial decision purely because of a favourable exchange rate.“In any case, the successive hikes in stamp duty on high value investment properties will cancel out much of the benefit that sterling weakness might bring to foreign buyers.“As a result the prime central London market risks a triple whammy of falling demand, supply and prices.“Looking outside London the impact will be less dramatic, but the uncertainty will do little to unblock the supply shortage. Would-be sellers will be more likely to stay put, and this morning’s collapse in the share price of Britain’s largest house builders hints at a freeze in new building.“In normal times constrained supply might drive up prices. But these are far from normal times, and a softening in prices is all but inevitable. The property market is likely to make a cry for help – and the new prime minister will face growing calls to reverse the stamp duty raises.“Without renewed stimulus, Britain’s property market faces a ‘hard reset’ and a Darwinian future of victims, survivors and predators.”But James Roberts, chief economist at Knight Frank, said, "For both residential and commercial property, there will be short-term market volatility. Potentially, and in selective instances, pricing could come under pressure."However, for both residential and commercial property, the long-term market dynamics remain unchanged. Low supply will continue to be a day-to-day market reality."

 

Read analysis of what the vote to leave the EU may mean for the global mobility industry in Brexit is a reality – a new era for global mobility? by Relocate Global's managing editor, Fiona Murchie.

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