PROPERTY POST BREXIT:
The result was a shock, the shock waves have spread. Everyone has an opinion or an educated guess on what will be the repercussions, here are ours;
STOCK MARKET: The stock market has seen exceptional volatility. This reinforces the case for real estate investment, property is not a volatile asset class, in times of uncertainty there tends to be a flight of capital to tangible assets like property which provide long term income stability. Real estate is an attractive asset class in times of volatility.
CURRENCY: The £ has devalued considerably against both the Euro and $. The result is that property in the UK, as of today, is 20-30% cheaper than it was last week for international investors. The UK market is attractive to international investors.
INTERNATIONAL INVESTMENT: Given the above favourable forex discount, international investors will continue to buy property both in London and in the wider UK market. Our reputation as an aspirational, cultural, and educational centre is unchanged. Our rule of law and our strong title of property ownership still prevail. All these factors are unaffected by Brexit. The dramatic drop in the value of the UK pound will alert many shrewd international property investors. The long term attraction of UK residential market remains unchanged.
WILL INTERNATIONAL INVESTORS THINK IT RISKY TO INVEST IN UK PROPERTY? We would argue not. Indeed, whilst there is uncertainty and challenges in the UK now, it is very obvious there will also be significant challenges in the rest of the European bloc; and indeed the UK may be a good diversification of assets outside of Europe.
THE ECONOMY: In the longer term, it is our view that the trajectory of the UK and the global economy will not be influenced significantly by this vote. Early indications are that the fall in the pound’s value, as well as the stock market, could very well lead to a technical recession, higher unemployment, which in turn may result in a cut in interest rates and possibly even further quantitative easing. Property will benefit from QE and continued low or lower interest rates.
HOUSE PRICES WILL NOT CRASH: There may be some small weakness in prices over the next 3-6 months. However, this will be from forced sellers and not widespread. We have low interest rates, good mortgage availability and an on going shortage of new supply; all factors which will prevent a crash. The general housing shortage means that prices will rise in the medium to long term. Short term opportunity, medium to long term remains sound.
HOUSE PRICES IN THE MEDIUM TERM: Longer term housing market demand will continue to increase until we actually leave the EU, as immigration is likely to continue especially in the run up to any potential tightening of border controls. As house building is still low compared to the UK’s needs, pressure on prices from an increasing population will continue.
NUMBER OF TRANSACTIONS: The number of transactions will be low; people who were thinking of buying are likely to put their plans on hold until at least September to see how EU and UK politicians react to the result. Transaction levels in London will certainly drop; the capital has always been far more politically sensitive than the rest of the UK.
THE LETTINGS MARKET: This should become stronger as more potential homeowners decide to rent instead of buy, swelling tenant demand. At the same time as the Government has tightened up on Buy to let rules; such that the supply/demand imbalance becomes even greater and new housing supply will likely fall. This will mean rents will increase over the next 12 and 24 months. Strong lettings market with rising rents.
INTEREST RATES: There seem to be 2 differing views; either they go down as the Bank of England offers support stimulus and tries to minimise any drop off of economic activity; indeed the Governor has said as much himself. Or those that believe rates need go up as a weaker currency brings about inflation. Our view is that rates will remain unchanged or fall, but are unlikely to go up in the next 6-12 months. Low interest rates to continue.
NEW HOUSING SUPPLY: There will be less supply, making it much harder for the government to achieve its target of building 1m new homes by 2020. This will add to the supply-demand imbalance, placing upward pressure on house prices and rental values in the longer term. Supply constrained.
CONCLUSION: There will be plenty of challenges in the short term, and certainly a 12+month period of uncertainty.
We would strongly urge investors to look through this period of uncertainty and focus on the long-term opportunity.
Like it or loathe it, we have every reason to be confident about the long-term success of the property market. We are an economic powerhouse and we will continue to be a magnet for investment.
The investment opportunities in Rutland, Lincolnshire, Northamptonshire and Leicestershire are compelling. Please do talk to our staff in Kettering, Oakham or Stamford to receive our recommendations.