According to Berkeley Group Holdings report about the real estate sector in the UK, the industry seems to be constrained due to Brexit uncertainty, limits on mortgage borrowings, and high transaction associated costs. However, the company has also suggested in its report that the South East and London witnessed robust demand during the May to August period this year. Thus, prices also remained strong in these parts. The market condition almost stayed at the same level between June and September this year.
House prices in the UK were rising continuously during the last 25 years. The Brexit vote triggered the uncertainty, and growth rate reduced considerably since then. Now, the speculation regarding the Brexit’s impact on the UK’s financial sector has paused investors.
Draft for legislation that bars foreign investors from anonymously buying properties
In July, the British Parliament introduced a draft for a law that would make it compulsory for offshore British property owners to reveal true identity. The bill aims at curbing the use of real estate in the UK for money laundering.
The UK was facing allegations regarding helping money launders from around the world for several years due to its lack of regulations. The new legislation aims at stopping all this. It will become compulsory for companies that buy and sell real estate to declare the owners of their firms and name them in a national registry. A positive point to note here is that the introduction of this draft bill did not impact the sector at all.
London remains attractive
The South East and London are probably able to keep investors glued due to their buy-to-let market. Investors can still manage to get reasonable rents for their properties in these two parts.
Data from Hamptons International indicates that during the first half of this year, owners of 12 percent of the properties rented out happen to be foreigners. The number for 2017 was seven percent.
Another critical aspect that is playing in support of foreign investors is the falling value of the pound. Investors are probably using their local currencies to buy properties and rent them out for hot rentals. If you need a reliable forex broker, you should visit our website.
Immediately after the Brexit vote, it was expected that people, mostly from the European Union nations, would leave the UK. Real estate experts were also looking forward to a drastic drop in rentals. But, one year down the line, markets have remained buoyant; rents are also at a reasonable level. So, everyone is coming back slowly. The United Kingdom’s willingness to get a proper exit deal in place is working as an assurance for investors.
The picture is not the same in every part of the UK though. Property rentals have declined or cooled in some areas. In other parts of Britain, rising interest rates and reduction in the value of properties due to Brexit can wipe-out the profits made by landlords. Even in London, compared to the property rentals reported in July last year, the figures slipped 0.3 percent in July this year.
As per Nationwide Building Society numbers, Home prices in Britain fell by as much as 0.5 percent in August this year. The drop is considered to be the deepest since 2012.
Domestic buyers are staying away, but due to the reducing value of the pound, foreign investors are still willing to jump.
Britain’s biggest tenant-referencing company, Homelet also shared a similar opinion in their report recently. They pointed out that an imbalance between demand and supply still exists. So, the country-wide average rents remained £937, but the average rent in London continues to be around £1,615. The figure happens to be the highest since 2011.
The opportunity won’t last forever because trade experts believe that once the United Kingdom and European Union put their exit deal in place, the pound will regain at least 15 percent of its value against the Euro. However, if the exit-deal does not happen, the pound may lose even more and reach its lowest (2009) level. Such a significant drop won’t be good news for landlords, especially, when they need to convert the rent received in pounds into their home money.
Commercial and office real estate under stress
Perhaps, it won’t be wrong to say that prices for commercial real estate have suffered more than house prices. A potentially messy exit also puts London’s status as EU’s financial capital under threat.
Currently, office spaces in London are much more expensive than those in Amsterdam, Frankfurt, Paris, Dublin, and other premium cities around the world. But, any change in its position as the European Union’s financial hub is going to hurt its image and of course, office space demand. What would happen if banks move their offices from London to somewhere else after the Brexit?
The scarier part is, some financial institutions are already moving their offices to Amsterdam, Paris, Frankfurt, and Dublin, even before completion of the exit.
Man GLG’s Undervalued Assets fund portfolio manager Henry Dixon shared his opinion on the issue. He said that London might not be able to ask for hefty rents on the commercial real estate once big companies start moving to places like Dublin. Once European Union nationals start shifting out of the UK, the overall demand for commercial and residential spaces will drastically reduce.
The second quarter of this year already witnessed a drop in the number of European Union migrants entering the country. The market pricing is already reflecting the pressure as per experts. Several office real estate firms are even offering a hefty 30 percent discount for the last few months. However, even such a substantial discount offer is unable to attract more investors.
EU’s position on border checks and the UK’s solution for immigrants will hugely influence the real estate industry in Britain during the coming days. Reports published by the nation’s leading dailies suggest that the home secretary has proposed a free entry for European Union nationals in the UK for 30 months from Brexit in case of a no-deal situation. Such a step will not only protect the economy but will also give these individuals sufficient time to apply for a new immigration visa as per the new system.