Brexit and the UK Housing Market

By David Rees

Brexit definition:

‘An abbreviation of "British exit" that mirrors the term Grexit. It refers to the possibility that Britain will withdraw from the European Union. The country will hold an in-out referendum on its EU membership on June 23’. (Investopedia.com, 20161)

At present the news is understandably occupied with Brexit; the uncertainty over whether or not Britain will leave the European Union following the referendum in June. With strong opinions now being voiced on the economic consequences of a UK exit, some impartial, much of it partisan, we felt the need to hone in on housing, gaining a clearer picture of what Brexit might mean for ShareProperty and its users.

In a recent survey carried out by accountants KPMG it was revealed that 66% of real estate investors believed that ‘Britain leaving the EU would have a negative effect on in-bound cross-border investment’ (quoted in Winkworth.co.uk, 20162), hinting that those with interest in the property market may benefit from voting to stay.

The plague of uncertainty

Although a decision is yet to be arrived on, many believe that impacts are already being felt. As we at ShareProperty have found with all large events that could alter the economy, behavioural patterns start to emerge, with investors a lot more cautious about their actions, refraining to sign off on sizable deals. Dominic Agace, CEO of Winkworth, international estate agent, says we could experience a fall in demand of property transactions over the course of the next few weeks.

‘We saw this last year with the General Election, with a quieter period in terms of transactions in the lead up to the vote, and so we anticipate a similar effect in the lead up to the Referendum’ (Agace, 20163).

While leaving the EU is Britain’s choice, the UK cannot dictate the exit terms.

“You become very lonely at that point, once you’re out of the decision making,” said Michel Petite, former head of the European Commission legal service. “Voting is the hard core of EU membership, the red line. You are leaving the club” (Petite, 20164).

The theme of uncertainty could encourage larger changes in itself, with property investors and developers refraining from getting involved in projects during times of economic uncertainty. As KPMG’s survey illustrated ‘an initial period of uncertainty could potentially be more immediately damaging to the UK real estate market than a stable post-Brexit world’ (Pyle, 20165).

‘Since the commitment to an EU referendum, the real estate community has been noticeably reticent about investing in the UK’ continues Andy Pyle, head of real estate at KPMG.

With less investor confidence comes a whole string of issues. Reduction of property transactions in an uncertain economic future may well act as a drag on price inflation

Exacerbating the supply crisis

A leave verdict may affect large property investment firms unfavourably, with a large number of EU workers in its supply chain. If we were to leave the EU, we at ShareProperty predict that the country would work with a very different view on immigration, with a large proportion of construction workers not being UK-born.

Hansen Lu, an economist at Capital Economics said: “Admittedly, according to the 2011 census, only around 10pc of those working in construction were foreign born, although given post- crisis labour trends, that figure might be closer to 12pc now.

“Yet given that it takes years to train skilled tradesmen, immigration reflects the easiest route to meeting the current labour shortage. Thus, if it compounded existing labour shortages, Brexit could have a lasting, dampening effect on housing starts (Lu, 20166)”.

What is your opinion?

Although we cannot be certain of what real changes will come into play if the vote dictates a split, we can share our thoughts and speculations. If you have an opinion on an end to this 43-year coalition, leave your comments with us.

 

**Please note that investing in early stage businesses involves risks, including loss of capital, illiquidity (the inability to sell assets quickly or without substantial loss in value) and lack of dividends and should only be done as part of a diversified portfolio. Your capital is at risk if you invest. Tax treatment depends on the individual circumstances and may be subject to change in the future.

 

References

 

  1. Investopedia (2016) What is Brexit? Available at: http://www.investopedia.com/terms/b/brexit.asp?layout=infini&v=5D&orig=1&adtest=5D
  2. Winkworth.co.uk (2016) What will happen to the property market if Britain left the EU? Available at: http://www.winkworth.co.uk/articles/what-will-happen-to-the-property-market-if-britain-left-the-eu
  3. Agace, D. (2016) Quoted in: What will happen to the property market if Britain leaves the EU? Available at: http://www.winkworth.co.uk/articles/what-will-happen-to-the-property-market-if-britain-left-the-eu
  4. Petite, M. (2016) Quoted in: What a British divorce from the EU would look like. Available at: http://www.ft.com/cms/s/2/7e0bce28-dbda-11e5-a72f-1e7744c66818.html#axzz47g6uP9Ti
  5. Pyle, A. (2016) Quoted in: Billionaire investors sound Brexit alarm for property market: but how does this affect your house price and the supply crisis? Available at: http://www.telegraph.co.uk/business/2016/03/18/brexit-what-it-means-for-house-prices-and-the-supply-crisis/
  6. Lu, H. (2016) Quoted in: Billionaire investors sound Brexit alarm for property market: but how does this affect your house price and the supply crisis? Available at: http://www.telegraph.co.uk/business/2016/03/18/brexit-what-it-means-for-house-prices-and-the-supply-crisis/

 

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