Now that the dust has settled after June’s EU referendum; we can take a closer look at the reaction from markets, both locally and around the globe.
Concerns around Brexit, together with high pricing before the referendum, caused initial chaos in the UK property industry. When the EU referendum result arrived, sterling plunged alongside the value of many FTSE-quoted property firms.
The “leave” vote jolted the UK property market, with many experts expecting to see a crash. However, a large number of savvy overseas investors had other ideas — they took a calculated risk that London would remain a safe haven for property investment returns despite the vote and continued uncertainty across global markets.
London is resilient. Despite trembles in China, an upcoming US election, change at the top of the UK political system and ongoing nervousness about the UK’s handling of Brexit — investors are still snapping up real estate in the UK capital. Their confidence remains strong and unwavering.
The weakened post-Brexit value of sterling compared to other currencies is the main factor — this has meant that UK assets are now 10-20 per cent cheaper than before the referendum. The Bank of England’s decision to lower the interest rate at the beginning of August has also made borrowing significantly more affordable, further increasing the attractiveness of UK property to investors.
Bargain
We have found strong interest from the Middle East; our Dubai office has experienced an upswing in enquiries from investors looking to take advantage of better value property in London. Data recently published shows that dollar-pegged Middle East investors who purchased a £350,000 (Dh1.5 million) property in the UK in September would have saved over $50,000 had they made the same purchase just before the Brexit vote result was announced.
We have also seen a spike in demand for London property from our office in Hong Kong; many financial advisers in Asia are reporting as much as a 40 per cent increase in enquiries for UK property. Investors are keen to grab a “bargain” and buy UK property at a discounted rate, with the vast majority focusing on the London market.
Historically, many overseas buyers have targeted London’s Zone 1, but we are seeing more and more enquiries for outer neighbourhoods too such as Hammersmith, Islington and areas of east London — areas which can offer investors higher rental yields. We are still seeing demand for prime properties, but we have seen the net being cast a little wider as homebuyers search for value.
The trend, which follows a series of stamp duty hikes on expensive properties since 2012, means investors are increasingly in competition with first-time buyers in new developments outside of the most expensive zones.
More affordable areas
Recent property surveys show prices in the most expensive central London boroughs such as Kensington and Chelsea are sluggish — in large part because of the huge stamp duty burden — while in contrast, those in more affordable areas of the capital continue to surge. What we are going to see is a rebalancing, where secondary areas close the gap with the most exclusive neighbourhoods in London, which have been the go-to safe haven for foreign investors in years gone by.
What is clear is that it is a good time for overseas investors to buy real estate in London. Sterling is currently at its lowest rate for years and there is less competition from local buyers, in a time of change and for whom the “Brexit discount” does not apply.
British buyers using post-referendum uncertainty as a reason not to take the plunge are in danger of missing out. The London sale is on to foreigners.
Nervous
Local property owners have developed a hypersensitivity to the political climate and many are sitting on their hands, nervous to be active in a market powered as much by shifts in sentiment as it is by economic reality. Article 50 has not been activated to exit the European Union and financial markets are fluctuating on a weekly basis, with some speculating that the value of sterling drifted against the euro and the dollar as a result of Boris Johnson discussing the UK’s latest Brexit plans!
Regardless of the volatile environment, overseas investors are the ones cashing in — these buyers continue to trust London’s real estate which offers impressive yields, particularly as the fundamentals of the market remain strong.
The writer is Managing Director of Fraser & Co.
