17 Apr 2019
Will Brexit Hurt Your Property Investments?
Last year, the Bank of England warned that a no-deal Brexit could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis,.
The central bank fears that failure to reach a deal with Brussels – with no transition period to a new trading relationship – could spark an immediate economic crash, with GDP falling by up to 8% in 2019, the unemployment rate increasing to about 7.5%, interest rates surging to 6.5% and property prices crashing by up to 30%.
Paul Smith of Touchstone Education commented: “When the Bank of England Governor, Mark Carney, warned last September that a disorderly Brexit could send house prices crashing by a third, many people dismissed his comments as the latest instalment of Project Fear.
“Forecasts of economic doom caused by Britain exiting the European Union are viewed very differently depending on which side of the argument you fall.
“Even those who balk at predictions of financial Armageddon will have taken note of some figures published this month suggesting that the political uncertainty surrounding Brexit has helped to push transactions in central London to their lowest in a decade.
“While property markets elsewhere in the UK have remained steady and, in the case of much of Scotland, appear to be booming, the current political deadlock has posed some important questions for investors.”
In terms of residential property investment in the UK, the following answers the most commonly asked questions:
Should I buy now? At a time of relatively weak house-price inflation, you’re unlikely to be disadvantaged by waiting until there’s greater clarity in the market, but the situation is not so perilous that you should hold-off for fear of a collapse. Buying to rent is less of a risk than purchasing for a quick turnaround. You may not achieve the premium you expect in the next few weeks or months if Britain crashes out or if a decision continues to be delayed.
Should I sell now? The supply of homes for sale is at an historic low in many parts of the country so, if you have a property to sell, you could use this to your advantage. In parts of Gloucestershire, Buckinghamshire, Dorset and the East Midlands, for example, there’s a massive shortage of family homes. If you own a desirable property in a sought-after area, you could be sitting on a gold mine.
How can I mitigate against rising interest rates? Interest rates are increasing, and most estate agents expect them to continue rising throughout 2019. As a result, buyers are tightening their belts, with more re-mortgaging to lessen their exposure, moving to mortgage-free or cutting maintenance bills. More people are moving onto fixed-rate deals, but the clever money is against fixing for longer than five years as lots of external factors – including Brexit – could influence and change the market in the medium term.
Commercial Property: Brexit Is an Opportunity Not A Threat
The day-to-day drama in Brussels and Westminster can obscure the long-term view, which, for real estate, is largely far more positive.
It’s easier to gain that perspective with an international outlook. At the time of the Brexit vote the decision was greeted differently across Europe and the world. Some shared the surprise and concern that dominated in the UK; in France, the feeling was largely one of incredulity that the UK was ruining the European dream. For Germany, it was seen as an opportunity to promote Frankfurt as a commercial market, while many Asian buyers and investors saw the decline in sterling as an opportunity.
A historical perspective also helps. In over three decades in property, the UK has undergone crises and economic upheaval, but markets, particularly London, soon recovered – and often thrived.
Memories are short. People forget Thatcher’s battle with the unions, unemployment and double-digit interest rates of the 1980s. But this is also the decade when institutional investment in UK real estate came of age, when the big commercial businesses experienced some of their fastest growth and overseas investment from the likes of Japan, Sweden and the Middle East began.
The talk of ‘crashing out’ of the EU is a reminder of the UK crashing out of the Exchange Rate Mechanism in the early 1990s when George Soros ‘broke the Bank of England’. It was also a time of chronic overbuilding and, early in the decade, sky-high interest rates – a challenge for overextended property firms.
Yet by the mid-1990s, investors, particularly German firms such as Deka and Commerzbank, were piling into London property.
Finally, what of the banking crisis in the past decade? In 2008 and into 2009, the commercial property market was on its knees. Prime City yields reached 7.5% or more. Yet by autumn 2009, the market had recovered, with yields back under 5% almost overnight.
Whether, when and how we leave the EU may have significant, long-term implications for the economy, but the impact on commercial property is likely to be short lived. Despite the uncertainty, the macroeconomic fundamentals remain strong. The economy is still growing, with 0.4% GDP growth in the latest quarter and employment at its highest since records began.
The property market is healthy. There is a significant equity base, low gearing and no sign of supply and demand imbalances. Vacancy rates in London are lower than at most times in the past few decades and there is a massive pool of institutional money from annuity funds, overseas investors and pensions in need of good, long-term returns.
As with any period of economic uncertainty, investors who are able to survive the storm generally go on to make significant returns when markets recover. The best way to navigate property markets as the UK continues to blunder its way through its exit from the EU is to stick to commercial real estate. Buildings that operate as a business such as a hotel or restaurant have valuable revenue streams you can factor into your buying decision. The best commercial property opportunities provide you with capital protection while earning a healthy income, a double-whammy for savvy investors in uncertain times.
Signature Living is one of the UK’s most progressive hoteliers which is flourishing in a market that is currently booming. An investment in Signature means you have a valuable interest in significant commercial property assets, providing robust returns over short terms from 12-24 months. Although there’s no guarantee that Brexit will be done and dusted in the short-term future, it is always advisable to have a contingency plan. To find out more about how we can help you successfully navigate Brexit-influenced investment markets, contact Signature Capital today.
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