BREXIT: How A Leave Vote Would Hit London’s Property Market
[Brexit is an abbreviation of “British exit” that mirrors the term Grexit. It refers to the possibility of Britain withdrawing from the European Union. The country will hold a referendum on its EU membership on June 23, 2016].
A finger remains on the pulse as UK citizens take to the polls to decide whether to remain a part of the European Union (EU).
The lead up to today’s referendum has seen many arguments presented both in favour and against a Brexit, yet the outcome of a Brexit would continue to be subject to lengthy consideration. A decision to leave the EU would be followed by a minimum two year period in which the government will negotiate an exit deal and the result of such deal to the economy as a whole will determine the long-term impact on the UK property market.
A vote to leave would lead to a sharp fall in sterling, at least in the short term, and according to Chancellor George Osborne, house prices could fall up to 18%. Whilst forecasts remain speculative, foreign investors are predicted to return to the market, and comparisons are being made to the 2008 recession which saw a boom to London real-estate with investors wanting to capture low interest rates.
London property is generally seen as a “safe haven” asset: it retains or increases its value and is protected by stability. Investors will see little short-term advantages of entering into new transactions, particularly following the recent increase in Stamp Duty Land Tax for second homes. Some analysts have therefore taken a view that the longer the sterling stays at a low, wealth preservation would decline and this lack of investment growth may, on the contrary, deter new foreign investment. Moreover, current owners may start to look at exit strategies and alternative investment opportunities outside the UK.
The commercial property market would be likely to take a bigger hit as both domestic and international companies fear a withdrawal from the EU single market which allows the free movement of goods, services, money and people within the EU as if it were a single country.
Galliard Homes, London’s largest private house builder, reported that its 7,500 planned constructions in London could be at risk as many construction employees working in the UK originate from countries across the EU.
Job losses would lead to a reduction in the need for office space and a withdrawal from the EU single market may even lead to head office relocations outside the UK.
Should the UK decide to remain part of the EU, it is anticipated that the property market would pick up once again by Autumn 2016.
Opinion polls have placed the two sides neck and neck and now voters must ultimately decide their future in the EU.
The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any other organization with which she might be associated.