With Theresa May having triggered Article 50, Britain is on course to leave the European Union within two years.
The clock is ticking on a final deal.
The final agreement that will be reached with Brussels is still unknown and the level of immigration – a fundamental factor in the supply and demand dynamics of any property market – remains to be seen.
On the day of the referendum in June 2016, markets responded brutally to the uncertainty and the value of the pound dropped dramatically. It has spent the last year in the doldrums and not been able to pick up to previous levels.
This begs a question which our clients ask all the time: what does all this mean for the UK property market?
Fortunately, it’s good news for property investors, especially for those overseas – and those who are buying outside of London.
- Sale prices for property
While the pound has weakened against other currencies – a situation which has great visibility to the whole world – what this means for foreign investors is that properties in the UK are simply on sale. When bought using foreign currencies, UK properties are up to 20% more affordable.
With more buying power built into your foreign currency, be it HKD, SGD, AED, USD, you can get more property for less cash.
- Greater demand from buyers as a result of lower prices
A knock-on effect of this effective reduction in price for overseas investors has been the rush by overseas buyers to snap up available units. Demand from our expatriate clients has piqued, which suggests overall confidence in the situation at present as well as optimism for the future.
- London has suffered the most in house price decline
According to the Financial Times, London has born the brunt of house price decline. Hometrack says that Brexit has been “driving down house price growth in the capital, now at its lowest level since May 2013”.
Meanwhile, Lucian Cook of Savills predicts that investors will be most cautious about purchasing in London due to the high cost involved, and that “values will flatline for … a couple of years.”
Outside of London, however, it’s a different story and there is significantly lesser Brexit-led impact on the market.
- Immigration reduction is mitigated by strong fundamentals
A major agenda item driving Brexit was of course the issue of immigration, and the pushback from the electorate which this seemed to inspire.
This is unlikely to have an effect on property fundamentals: the demand for property in the UK is already intense and housing supply lags significantly behind demand. According to the UK Parliament: “Estimates put the need for additional housing in England at between 232,000 and 300,000 new units per year, a level not reached since the late 1970s and two to three times the current supply” (www.parliament.uk , January 2017).
What’s more, experts believe that Brexit itself will have little impact on immigration anyway – with a fall of only up to 15% in immigration.
- Investors benefitting from ‘currency play’
With the fall of the pound after the referendum, experts now believe that this has bottomed out and will return to pre-referendum levels. The only way for the pound is up, according to conventional wisdom.
Looking at these figures, we see that in the first five months of 2017 the Pound has strengthened 8.3% against the US dollar and 10% against the Australian Dollar. In monetary terms, this means that if you invested USD100,000 into a UK property, your Dollars would now be worth USD108,300. This means growth of USD8,300 in 5 months, achieved by using a simple technique called currency play.
With the current weakness of the pound, there is great potential for additional future growth here and when the pound recovers to previous levels, these investments will bear real fruit.
A great time to get into the market
All in all, the UK property market is ripe for entry and a variety of factors are playing in the favour of investors.