Brexit and UK Real Estate Market

On the face of it, the real estate sector in UK has predictably demonstrated significant upheaval and change in the months following the Brexit vote. However, as with most momentous decisions that are likely to bring out structural change, we must view impact at two levels – in the short term and medium to long term.

Immediate concerns are likely to be stagnating or falling rents, higher than usual vacancy rates and a possible decline in speculative investment funding. The Brexit vote will most certainly bring in uncertainty across all market sectors and real estate is not an exception. To a large extent, the commercial influence of Brexit on UK’s real estate will largely be determined by the broader impact of Brexit on the economy in general and the currency in particular.

However, the months after Brexit, we are slowly but surely seeing the following:

a) A gradual but definite increase in buyer confidence ensuing the initial chaos that saw falling investor confidence in the sector. Analysts are quick to point out that the changes witnessed during the initial period of Brexit was more a correction’ than a serious slump in the real estate market.

b) In the aftermath of the uncertainty following the referendum, we have seen property prices being pushed lower due to mark ups of property yields. There is therefore, a need to give correct consideration to this factor.

c) We are likely to see a Wait and Watch’ tactic by investors. Real estate buying and selling activities have slowed and will continue to be sluggish, considering the ambiguity in the market.

d) Expect some volatility in prices – this is inevitable given scenario surrounding investor confidence following the Brexit vote. This is likely to be limited to medium term though; most experts predict the UK real estate market to return to normalcy in a fairly reasonable amount of time.

e) Irrespective of the upheavals witnessed amongst domestic investors and real estate buyers, it is seen that the demand for UK real estate from foreign buyers remains steady. There is a widespread opinion that Brexit is unlikely to cause any significant cash or credit crunch or any sort of major slide in the market.

There is also a different perception that is gaining ground – that the Brexit vote has actually helped correct UK property prices. We have witnessed a reduction of around 10% to 15%, especially in the areas in and around London, a necessary dip, say real estate analysts to temper a segment that seemed to be overheating in terms of prices. Opportunists have already begun responding, interest rates have been cut and banks are further supporting lending and providing much needed liquidity to the market.

Ambiguity notwithstanding, the mortgage market in UK is fairly strong with low interest rates and adequate support for home buyers. Property valuation might be stressful affair, albeit on more realistic lines, giving the genuine home buyer much needed relief. The government’s commitment to improving infrastructure and connectivity will be a further boost to the sector.

There are continuing concerns of course, but overall assessment indicates that the UK has historically always been a stable real estate investment option with well-studied trends and a refined property market.