Following months of acrimonious debate, the electorate will now decide whether the UK remains in the European Union or opts to leave. The result will be one of the defining moments in recent British history with possible ramifications for the future of the EU itself, but what impact would a Brexit have on the UK property market?
As the British Property Federation (BPF) acknowledges, it is difficult to speculate with any degree of certainty on the implications of Brexit on the real estate industry. We will be entering uncharted waters with unfamiliar variables for both the residential and commercial sectors of the market.
The Chancellor has led warnings of a damaging impact on the housing market, claiming that prices could fall by between 10% and 18% over the next two years if Britain votes to leave the EU. He has also spoken of clauses in ongoing commercial deals allowing investors to pull out in the event of a Brexit vote.
The Leave campaign has dismissed these warnings as an ‘extraordinary claim’ and insists that leaving the EU would benefit first time buyers by lowering competition for housing. So who is right and who is wrong? Once again, there can be no guarantees but a sober reflection may shed more light on the question.
Brexit and the Residential Sector
Earlier in the year global real estate services provider Savills published the results of research intended to provide an overview of the possible impact of Brexit on the UK and European property markets. In terms of the residential sector the report concludes that a vote to remain would result in a ‘relief rush’ that would fuel demand.
In the event of vote to leave Europe a period of uncertainty would follow which could affect housing market demand. It goes on to say that buyers are likely to be more cautious, particularly in the prime sub-markets such as central London, and that the sector would be more exposed to short term risks.
However, Savills believes that a period of prolonged low interest rates may mitigate the anticipated slowdown and that traditional market drivers would restore demand once the uncertainty clears.
Brexit and the Commercial Sector
A remain vote would lead to a rapid return of confidence in the commercial sector resulting in a big increase in transactions during Q3 and Q4, the report forecasts. On the other hand, a vote for Brexit is likely to lead to a short term fall in UK market activity as investors gauge the impact on the wider economy. Offsetting the anticipated fall is the widely held belief that investment volumes have already peaked and a slowdown is expected in any event.
In the medium to long term, however, investors are likely to resume activity in the UK market where favourable regulation and the strong performance of commercial assets is largely unrelated to Britain’s membership of the EU.
In conclusion, there is little doubt that a Brexit vote would lead to a short term downturn in the UK property market and that many investors would prefer the end to the uncertainty a remain vote would deliver. But, as Savills points out, ultimately the strength of the market has more to do with the assets in question than whether they are located inside or outside the European Union. And that decision rests solely with the electorate.