Bright spots amid post-Brexit uncertainty

Brexit has cast a shadow of doubt over the UK property market, but a few bright spots remain. The aftermath of Brexit has been marked by widespread shock and fear amongst much of the British electorate, with many (including a good number of Leave voters) not expecting the result.
Unsurprisingly, Brexit spells uncertainty for many sectors, and the property market is no exception. How it will affect real estate and to what extent will depend on the outcome of the negotiations on the UK’s exit, according to Knight Frank’s research on the UK EU referendum result.
On the residential front, short-term consumer confidence will likely be shaken by this uncertainty, possibly affecting market activity and leading to a dip in transaction volumes and prices. Since mid-2014, the prime London residential market has seen a slowdown in price growth and sales activity. The subsequent 2015 UK election, higher stamp duty rates, additional rates for investors and second-home buyers and now, the EU referendum results, have all dampened market sentiment. Liam Bailey, Knight Frank’s Global Head of Research, says: “Some demand, especially from investors, will be delayed and in some cases, redirected to other markets.” He is quick to point out, however, that “the significance of these trends should not be overstated”. Indeed, London’s residential sales volumes between Q4 2015 and Q1 2016 saw a sharp increase, and investors who have already entered the UK market would incur great financial losses should they pull out now.
With the pound having fallen to its lowest level in three decades, inward investment in London is likely to increase, though it will be restricted by the 80 percent of central London buyers who are UK residents. And while a weaker pound could lead to imported inflation, lower housing interest rates in the short term “will act to underpin demand, especially for equity-rich buyers with access to the best funding rates”.
In the residential rental sector, one of the major concerns is — contrary to popular belief — demand outstripping supply. Since 2009, London has seen 750,000 new jobs but only 140,000 new homes. The private rental segment in particular has experienced steady growth; this can be partially attributed to the decrease in prime rents over the past eight years.
Additionally, 51 percent of tenants in the UK are foreigners, with US tenants a mainstay at 15 percent, and 24 percent consisting mainly of Brazilian, mainland Chinese, Hong Kong and Singaporean tenants. European tenants in the UK are mostly from France, Germany, Italy, Norway and Spain.
According to Tim Hyatt, Knight Frank’s Head of Residential Lettings, “It’s too early to gauge Brexit’s impact on lettings.” However, he advises landlords to offer incentives to attract tenants. “If you don’t, you may end up sitting on a large (real estate) investment with no return on it.”
In terms of UK commercial real estate, retail sales performance will be erratic but retail property investment may well draw opportunistic overseas investors seeking to capitalise on the falling pound. The same can be said for other types of commercial property investment in the UK, though the London hotel market is expected to be hit the hardest.
Philippa Goldstein, Hotel Analyst at Knight Frank, projects that “the political and economic turmoil will be likely to result in weakening hotel trading performance in the short term”.
However, she adds: “A fall in the value of sterling will make UK property more attractive to foreign investors in hotels, (and) a weaker currency will attract greater demand for hotel accommodation from overseas visitors.”
  Cheryl Marie Tay, Senior Journalist at PropertyGuru, wrote this story. To contact her about this or other stories, email cheryl@propertyguru.com.sg

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