Peter McElligott, head of real estate at Penningtons Manches, shares his thoughts.
While the economists and pundits talk about volatility in the markets, what does this mean for real estate? Will London still be the focus of high end residential? Will students still come to the UK? Will the commercial property investment and development funding markets continue to offer attractive yields?
There is likely to be a cooling off period during which there will be a realisation that the UK has not yet left the EU. High end residential property has probably been challenged as much by stamp duty hikes from the Chancellor as Brexit. The world language remains English and students from overseas will still come to study at some of the best universities in the world.
At the moment, the devaluation of sterling not only offers exporters an advantage to be exploited but also offers overseas investors more buying power than it did on 23 June – particularly if you are an American.
While EU law does not feature heavily in real estate, it is possible that certain regulatory and compliance legislation may be relaxed leading to reduced overheads when investing in property.
The problems are more likely to be seen in the short term. Some property investment funds will be adversely affected as investors look for better returns elsewhere but that will also present some opportunities. Confidence in brand GB has undoubtedly been dented. Our links with Europe and the opportunity for people wanting to invest in Europe through the UK as the first port of call will undoubtedly be re-evaluated. The mortgage market (banks and housebuilders have already seen share prices fall), office take up, development finance and, consequently, transaction flow will all be adversely affected.
However, as so much of the economy is dependent on financial services, Brexit is unlikely to have a dramatic impact on industrial units, housing associations or retailers who are, by and large, importers of manufactured goods. Despite Iceland seeing off England we still need supermarkets!
London is still likely to be seen as a safe haven with plenty of opportunities for both foreign and canny real estate investors. Investment in real estate may fall in the short term but it is fair to say it had already fallen (according to CBRE) and was 21% lower in the first quarter this year than the year before. Fortunes can still be made if investors take a medium/ long term view and look through the present turbulence.
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