Brexit and Property - Carry on regardless?
It's fair to say many businesses and individuals involved in property awoke on Friday 24th June with a sense of foreboding.
Regardless of one’s politics and views on the EU, it seemed clear that the referendum result would - at least in the short to medium term - lead to uncertainty, loss of confidence and, in turn, a property crisis writes FBC Manby Bowdler's David Grove.
The immediate signs were not good. The FTSE crashed and the Pound collapsed. However both quickly recovered and the economic indicators, for the most part, suggest that there is currently little ongoing adverse impact on the economy. But what of the future?
There has been no shortage of column inches and pub chat spent in assessing the impact, both current and likely, of the Brexit vote. Many may feel that the topic has been exhausted, but I thought it might be worthwhile spending a little time trying to asses the impact on Property in the UK.
On the face of it, we have found little impact to date. The first couple of weeks suggested some nervousness on the part of both buyers and sellers, landlords and tenants, but that nervousness seems, for the time being at least, to have dissipated. There may have been some cooling in the prime London market but that seems to inhabit a world different to much of the rest of the UK and probably needed some of the froth knocking off it.
Property funds such as those operated by Aviva, Standard Life and M&G Real Estate hit the headlines when they had to suspend trading shortly after the vote, in the aftermath of a rush of monetary withdrawals. The problems facing those funds were, however, in some part structural (it is difficult to operate a ‘liquid’ investment – allowing immediate monetary withdrawals – when the underlying asset - i.e. property - is far from liquid).
Lenders remain ‘open for business’. Their criteria remain substantially stiffer than those operating in boom times of the pre-2008 crash but there is little sign at the moment that the Brexit vote has hardened their attitudes to lending.
Many commentators were predicting the ‘top of the market’ and an end to price rises in the commercial market anyway. If there is a lull in the market, it will be difficult to assess whether this is as a result of the Brexit vote or would have happened regardless.
In the residential market there was a notable immediate impact, and the number of first-time buyers in particular fell, although the fact that the referendum coincided with the quiet ‘holiday months’ of the summer may have contributed to that. Since then, the residential market seems to have largely recovered. Sellers continue to sell, buyers continue to buy, and prices continue to rise, although perhaps the rates of increase have slowed a little.
Business does not like uncertainty. Making decisions on substantial capital expenditure (for instance the purchase of a new property, or the expansion of an existing one) are made more difficult and many business will prefer to ‘wait and see’ what the future holds before committing to such expenditure. The problem facing Business is that Brexit looks like it may be at least two and half years away – and most business decisions cannot be put on hold that long.
That, and the favourable impact on the Pound’s devaluation for exporters, may explain the apparent limited impact to date – businesses simply cannot ‘sit on their hands’ waiting for unknown consequences of something that will happen in some years’ time.
There will soon be pressure from higher import costs as the lower value of the Pound feeds through. As we move closer to the actual withdrawal from the EU, and ‘reality looms’, I suspect that we will see more nervousness and a downturn in markets. Of course the level of the impact will depend upon the negotiated terms of the exit and, despite anyone’s best guesses, no one knows how that will play out.
My personal view is that we will see a dip in the Property market as we near the exit date - whether purely short term or in the longer term will depend upon the precise exit terms and, more importantly, the view of those terms taken by the individuals and businesses in the UK.
Having said that, I was wrong in my assessment of the immediate impact of the vote – and I stand more than prepared to be proved wrong again!
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