As the Brexit dust settles, property investor Jonathan Stephens takes a look at the health of the UK property market.
The Brexit vote was certainly unexpected, but equally so was the aftermath of the referendum. While the Remain camp warned of economic meltdown if we left the EU, the UK has shown resilience, and overall, markets remain strong.
Profound Economic Shock?
Chancellor George Osborne said that a vote in the wrong direction, i.e. to leave, would result in a “profound economic shock”. However, from the data we have seen over the last couple of months, there is no real damage to the economy to report.
That is not to say that Brexit has had no impact – it has. But instead of shock, we are going through a period of carefully-managed change. Yes, there are signs of volatility and some investors are cautious, but the overall climate is positive. The BoE’s Mark Carney said from the outset that “the UK can handle change”. Let’s look at the short, medium and long-term effects of Brexit.
Short-term Brexit Impact
International investors were the first to jump at the new opportunities following the vote. With a sliding pound and low interest rates, overseas property investors looked to London and the Northern Powerhouse cities to snap up investments at bargain prices.
While Chinese investors are often mentioned in the press, American investors have also landed some great deals, all thanks to the FX rates. For example, a £350,000 property, when purchased with US dollars, was $70,000 cheaper following the Brexit vote. Now that the base rate has fallen, investors can borrow at even lower rates, which will make property even more appealing.
China’s Juwai has reported that enquiries into UK property have risen by 40%, and following the appointment of Theresa May, Chinese investors are even more confident that the UK is a safe haven. Juwai explained that “the UK looks like the same old safe haven as ever – but cheaper.” It’s every investor’s dream!
The main concern for overseas investors is that the exchange rates may start return to pre-Brexit levels, which will mean the current opportunities may soon be lost.
Business appears to be remaining strong in the UK. Unemployment figures have fallen to the lowest level since 2005, with just 4.9% of the workforce seeking employment.
Medium-term Brexit Impact
The medium-term prospects are certainly looking up. July’s RICS UK Market Residential Survey reported that almost 1 in 4 homeowners are now expecting prices to increase – after Brexit, everybody was expecting a housing crash, or at best, stasis. Even more promising, London property is expected to rise by 4% per year, for the next five years – a £500,000 investment made today could well be worth £600,000 in five years. Combined with high rental yields, this still makes London an excellent short-term property investment.
Overall, the mood is quietly positive. There is no sign of a mass departure of business, as warned by the Remain camp. In fact, GlaxoSmithKline, Wells Fargo and McDonald’s have all announced plans to expand their operations in the UK.
The Long-term Brexit Impact
The UK’s construction sector experienced the worst of the fallout, with Persimmon and Taylor Wimpey both seeing huge share price drops. However, many feel that when the outcome of Brexit is decided, these stocks will leap back. House building is largely on hold while the UK determines its place in Europe, but with supplies so low, there is likely to be a boom once Brexit has been finalised.
Overall, Brexit has shaken up the UK’s economy and led to some significant concerns, but the greater picture looks positive. Theresa May is negotiating new trade arrangements and the UK will remain strong. For property investors, the hotspots continue to be London, Manchester, Liverpool and Birmingham.