In the months leading up to the EU referendum, there was a definite and unmistakeable slowdown in the property market as uncertainty gave investors reason to pause. That was pretty clear, but a not of investors are now finding it much harder to interpret what has happened in the market in the months since the referendum result was actually revealed. What impact is the road to Brexit having on the sector, and how is this expected to continue?
Property Since the Referendum
The impact on the property sector as an industry has been something of a mixed bag, and this is the state of affairs that is expected to continue. On the one hand, it is undeniable that the referendum result and related fears about the impact Brexit will have on the wider economy have hit the market. An uncertainty-driven slowdown defined the run-up to the referendum, and in many ways this is the situation that has continued through to the present. Activity in the market has slowed, and growth in property prices and rental rates has likewise slowed.
On the other hand, the impact has not been quite so great as was feared, partly because of something that is not exactly a good thing in itself but has proved to be something of a boon for property. The drastic drop in the value of the pound in the immediate aftermath of the referendum and the continued low rate against other major currencies has attracted some foreign investors. Thanks to favourable exchange rates, they are getting sizeable discounts on higher-value UK properties. In particular, prime London properties have benefited from this effect. While these investors are not numerous or active enough to balance out those who have been prompted not to invest in UK property by the referendum, they have been consistently softening the blow since the polls closed.
Approaching and After Brexit
Much of the impact that the run-up and aftermath of triggering Article 50 will have on property remains unknown. This is perhaps not surprising, since uncertainty is one of the key forces behind the current slowdown. Nevertheless, experts are venturing some predictions about how things are most likely to proceed.
It is expected that yields will continue to shrink as the UK economy is hit by the process of extricating itself from the benefits of the single market. However, the property sector still benefits from strong fundamentals – most particularly the fact that much of the UK is a high-demand market and almost every part of the country has a supply shortage – so it is expected to be one of the sectors that is better able to weather the process of leaving the EU. The importance of choosing the right properties in locations that are likely to perform well will be all the greater, however, as conditions become more adverse. In particular, investors might like to consider the fact that the investment market is already decentralising away from London with many other cities offering better yields and growth potential. With Brexit likely to trigger a drop in the foreign investment which benefits the capital especially, this process may be further accelerated by Brexit.