As Alfie is away on holiday at the moment, it has fallen on Nigels shoulders to give us Malverns take on the current political and economic situation in the UK and the way we envisage it affecting the London property market:
MALVERNS & BREXIT
Those of us in the London property market had been anxiously awaiting the results of the Brexit referendum, as the lead up period had been full of uncertainty, resulting in lower transaction volume. With the 24th June 2016 vote to leave the European Union, unfortunately, surety has not been restored and many are wondering what this means for United Kingdom, and the London property market.
The results of the vote triggered an immediate reaction in the financial and currency markets, with the pound plummeting to a 31-year low against the US dollar. The FTSE opened with a fall of 8.7% (although recovered) and both house building and banking shares were amongst those hardest hit.
Even with the initial response being very dramatic, agreeing the terms of the exit from the EU could take up to two years to negotiate (from the time Article 50 is invoked) which could mean many more months of uncertainty.
The capital has been an area of prime real estate for a number of years, so as the hub of property investment, both for the UK and foreign investors, the London property market could suffer significantly. Over the last few months, we’ve already seen property sales volume decline ahead of the referendum and on the back of recent stamp duty increases. Given the capital’s links to the financial sector, rental rates may also be adversely impacted as nervousness in the financial sector and potential job transfers may impact rental demand.
However, in the midst of the many dire scenarios, there will always be opportunities. Seasoned investors have often secured their best deals during times of turmoil. With the sterling’s recent decline of over 10% (relative to USD) it has not only offset recent stamp duty increases, but may also cover any potential reductions on lower rents, good news for foreign investors. For those with a long term view, buying property is still a good investment, particularly when compared to alternative investment options.
For some sellers, we have had to have the difficult conversation of price reductions, but we’ve also successfully completed sales transactions, so deals are being done. For those sellers who have owned their properties for a long time, prices in London are still well in excess of the low points of 2007 and 2008, meaning that they are likely to be selling at a profit. But now more than ever, it is important to price to the market and being armed with the latest data and information is critical. In addition, with interest rates that are still historically low, first time buyers may also have a unique opportunity to get on the property ladder.
Only time will tell what the long term landscape of United Kingdom outside the EU looks like, but for London, the fundamentals remain compelling:
• Significant shortage of housing relative to supply
• Stable regulatory and legal system
• World class education and cultural institutions.
With a long term strategy, the London property market will continue to be a sound investment.
Property buyers and sellers should consider the facts and make decisions based on reality, not fear or misconceptions. Those who will need to move will still do so and those needing shelter will still look to buy or rent. It is easy to make a good investment in times of stability and upward trends, but more challenging in times of turmoil and uncertainty. However, given the historical returns of the property market, it is still a worthy consideration.
If you are concerned about your property investments or would like to discuss the Brexit effect, please contact us for a free consultation