The shock news that Britain is to leave the EU is likely to have the largest detrimental effect on the prime property market in London.
With sales activity and property price growth in the sector continually slowing since 2014, experts had already underlined the danger of a Brexit driving further reductions.
Prime falls
Liam Bailey of Knight Frank, believes, ‘there is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market. Some demand, especially from investors, will be delayed and in some cases redirected to other markets although the significance of those trends should not be overstated.’
‘It is not easy to identify an obvious alternative destination for investors despite short term nervousness. On the eve of the vote the pound sat 14% below its mid-2014 peak meaning pricing in the prime market was more attractive for dollar buyers. While a further weakening of the pound could increase inward investment, this impact will be constrained by the fact that around 80% of central London buyers are UK residents,’ he added.[1]
Interest rate cuts?
Bailey went on to say, ‘it seems a reasonable assumption to make that interest rates will be lower for longer, despite the risk of imported inflation from a weaker pound. While the long term benefit of ultra-low interest rates on the housing market may be questionable, in the short term they will act to underpin demand especially for equity rich buyers with access to the best funding rates.’[1]
‘While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe haven appeal,’ he concluded.[1]
PCL market to be hardest hit by referendum result
Risks
Peter Wetherell, chief executive of Wetherell, believes there is now a Pandora’s Box for the London property market. He feels that this will greatly assist foreign investors.
Wetherell suggests, ‘This is a market for risk takers and people able to spot high risk, but potentially lucrative opportunities that have emerged overnight due to the fluxes in the markets. Dollar based Middle East and Asian investors in particular will now look at short term buying opportunities in the central London property market and look at acquiring residential property priced up to £6 million.’[1]
‘Now that UK will not be part of the EU in the future then industry construction costs could rise by up to 15% since currently construction materials imported from and exported to the EU are free of duty and taxes. Many site/construction staff working in London are people who originate from countries across the EU the future of all of this will need to be looked at quickly and decisively,’ Wetherell added.[1]
[1] http://www.propertywire.com/news/europe/brexit-london-property-market-2016062412069.html