05 May 2016 #Real Estate
The prospect of the upcoming referendum on a British exit from the EU, or ‘Brexit’, is the currently the centre of much debate. It is very difficult to envisage what a post-Brexit Britain would look like; in the event of a leave vote, there is no blueprint for the terms of the settlement which would need to be negotiated with our European cousins.
There is much speculation about the effects of having to negotiate trade deals and the uncertainty which the ‘unknown’ path of leaving the EU would bring. What we do know is that, at least in the short term, uncertainty surrounding the referendum will almost certainly lead to a slower property market. This is in the context of an already slightly cooling market; the changes to SDLT introduced recently will certainly have an impact not only on the buy-to-let market, but also on higher value commercial properties now subject to an increased 5% rate of SDLT.
There are investors out there who will continue regardless, but we know from our experience of general elections and also from the 2014 Scottish referendum that transactional activity tends to pall in the period leading up to a major vote; reportedly, volumes of Scottish property sales were 8% down in the month before the referendum compared to normal expectations.
There are voices of concern over the possibility of a change in the perception of London, in particular, as a ‘safe haven’ for inward investment. The London ‘bubble’ has seen unprecedented property price inflation over the past few years. Whilst the uncertainty over the outcome of the referendum may have a short term effect, the notion that capital flows may be diverted away from the UK would be unsettling for investors and owner-occupiers alike, if the bubble was to burst or deflate to any significant degree.
There is also concern over the future of London as a leading financial services centre in the event of a Brexit as well as the potential for relocation of manufacturing and/or head offices away from the UK – to enable them to continue to take advantage of the Single Market. This would clearly have a depressive effect not only on the job market but also both the residential and commercial property markets.
Whether or not the future perception of London changes, there remains a chronic housing shortage in London and the south east of England. It is almost inconceivable that Brexit would mean the repatriation of European migrants. Demand, therefore, for housing will almost certainly not be satisfied any time soon. Indeed, it could be argued that a Brexit scenario could actually lead to a skills shortage in the construction industry with a flow of particularly eastern European migrants being reduced or reversed. This could, itself, lead to a bottleneck in housing supply which would maintain artificially high price levels. A weak pound, which is what would be expected in a Brexit scenario, would also make inward investment more attractive.
All this is, of course, crystal ball gazing. Whether the UK votes to leave or remain, it is hoped that we are confident enough in our strengths and our ability to rise to the challenge so that, either way, Britain will remain a place which continues to be outward looking, where it is good to do business – and a favourable place to live and work.