BLOG: Brexit bargains

PICTURE CREDIT: Murray Gray via Wikimedia Commons

Contrary to the reaction of the financial markets, the UK vote for Brexit probably doesn’t mean that the housing market in the UK is about collapse. While some uncertainty may reduce house price growth in the short-term, for the longer-term property investor this could be a once-in-a-lifetime opportunity for investing in off-plan property in London (such as at Elephant & Castle).

The foreign property investor just received a boost in value-for-money

Demand for off-plan property in London from foreign investors is likely to increase. In the 24 hours after the Brexit vote, the value of sterling fell on foreign exchange markets. Not by as much as had been predicted, but by around 6% against the euro and 8% against the dollar. As I’m writing this, the pound is now worth €1.23. This 6% Brexit fall means the European property investor has 6% more sterling to spend.

Put another way, a £400,000 off-plan property in London that cost €520,000 on Wednesday 22nd June now costs €492,000 on Friday 24th June. In other words, the post-Brexit foreign property investor gets more bang for their buck (or euro).

Demand from homebuyers and renters probably won’t collapse

There is concern that demand for housing will fall in London and the UK. However, parliamentary research produced for the 2015 Parliament put demand at between 232,000 to 300,000 new housing units per year through to 2020. Demand for new homes is exceeding supply by around 150,000 every year. This demand, fed by the number of new households created each year, is unlikely to fall below the level of supply.

Immigration will probably remain strong, but more affluent

Undoubtedly, some of this demand for homes has been created by immigration. However, even under Brexit the level of immigration may not fall. In fact, the main Brexit movers have always said that control of immigration is their aim, pointing to Australia’s immigration model as an example.

Under a similar points-based immigration system, it’s likely that lower-skilled, lower-paid immigrants will simply be replaced by higher-skilled, higher-paid immigrants. If this is the case, then demand for rental property in London may even increase, with renters more able to afford higher rents.

It should also be noted that immigration from outside the EU is as large a number as immigration from within the EU. With a total net immigration number of around 300,000, it is estimated that immigration accounts for around 90,000 of the new households created every year in the UK – so even if net immigration collapsed to zero, this would still leave supply of homes in the UK short of demand by around 60,000 units every year.

Why off-plan property in London is excellent value

The uncertainty of the exact outcome of Brexit may cause the property investor a little nervousness, but the fundamentals for off-plan property in London (and the general property market) remain strong.

London is a large, global city, and one of the world’s key financial centres. It will probably continue to be so: despite the spectre of losing international business by not embracing the Euro currency, London’s status as a global financial status has grown since.

There are massive regeneration projects underway across the city, transforming its appeal even further and faster.

The move through Article 50 and to a final exit from the EU is likely to take around two to three years (depending on when the UK invokes its right to leave the EU). Certainly during the initial 3 months after the vote, uncertainty may hold property prices back. For the property investor who buys off-plan property in London in the next few months, any slowdown in price growth may present a tremendous investment advantage:

– Demand for rented property will probably remain strong;
– London will probably remain a global financial centre; and
– the foreign property investor is buying at even better value in their own currency.

One final factor for the property investor to remember is that in, the first quarter of 2016, only 9% of London property purchases were made by EU property investors. The UK property tax regime for foreign investors has not changed, and probably won’t. In other words, very little has changed to disrupt the fundamentals that direct The property market and make off-plan property in London such an attractive investment for foreign and British property investors.