Should you shape your property investment strategy for Brexit?

Are you doing the Brexit head-scratch?

As you can imagine, we’re pretty interested in how a possible Brexit might affect your property investment strategy.

So we’ve been keeping an extra close eye on the news and views of pro-Brexit and pro-EU campaigners and columnists. What we’re seeing is total confusion! So we thought we’d take a quick look at just how muddled all the commentary is at the moment, and what property investors should make of it all as they decide on the best property investment strategy.

Brexit would mean doom for property investors…

According to an article in the Daily Telegraph in mid-April, the British Property Federation (BPF) believes that investors and developers are delaying property investment decisions until after the June 23rd EU Referendum. The article quotes several sources at a BPF conference discussing commercial property in early April as explanation. For example, Paul Brundage, senior managing director for Europe at Oxford Properties said that “there was potential for his business to be ‘materially affected’ by the referendum.”

David Sleath, CEO of Segro, said, “… certainly over the next few months we’re going to have a period of great uncertainty that’s going to impact investment sentiment.”

Giving an insight into how property investment strategy should be shaped to deal with Brexit, the CEO of Hermes Real Estate, Chris Taylor, said, “We’re concerned about short-term political risk but for us as a team we see opportunity, because we are long-term investors.”

London property has a big upside if the EU Referendum vote is to leave the EU…

Just a couple of weeks after the Telegraph article was published, out came analysis from London Central Portfolio (LCP) that said a Brexit would cause little damage to the London market, and could lead to an increase in its attractiveness for foreign investors. The article, published in EstateAgentToday, says that the property market might slowdown as the EU Referendum draws nearer. It then goes on to speculate that a Brexit will have very little downward effect on property prices, and could lead to higher demand.

The analysis from LCP shows that only 12% of foreign buyers in the London property market are from the EU. The factors that draw property investors to London would remain in place, irrespective of an in or out vote. It points out that foreign investors’ property investment strategy is dictated by London’s “reputation as a cultural, educational and financial centre, together with its rule of law, political and economic stability.”

Importantly, the LCP report highlights that if the UK should vote for Brexit and if the value of the pound falls because of this, then London property becomes more attractive to foreign investors. This is certainly true on a price basis: if the pound falls, the number of Euros needed to buy property in the UK falls, too. That could pull in more foreign investors.

So what should property investors do with the EU Referendum approaching?

The truth is that no one can predict the future (not even the property experts), and whether you lean towards putting your EU referendum ‘X’ in the stay-in or pull-out box there is plenty of helpful ‘advice’ that proves what you want to hear. Most of the ‘news’ and ‘facts’ about Brexit and the effects of a vote either way in the EU Referendum are no more than opinions – ‘coulds’; ‘mights’; and ‘ifs’ should all be treated skeptically.

More important is to listen to real facts. For example, ahead of the stamp duty increase in April, mortgage lending in the UK rocketed. Buy-to-let investors were the main contributor to a 59% hike in mortgage lending (it breached £25 billion in March alone).

Stamp duty is now 3% on second homes, but a smart property investment strategy will reduce the effects of UK property tax changes. (And for foreign investors, the fall in the value of the pound over the last three months has more than negated this stamp duty rise.)

If you’re concerned about a possible Brexit, it’s worth returning to Paul Brundage at the BPF conference. Further commenting on the debates surrounding the EU Referendum, he said:

“We need not to get caught up in these macro issues, but it’s hard not to be absorbed by all these things.”

And this is probably the best advice that anyone can give to a property investor who is scratching his or her head about property investment strategy over the next couple of months: Ignore the Brexit arguments, and base your decisions on good property fundamentals, such as the huge demand for private rental property:

  • Right now, there are 5 million households renting privately in the UK
  • Growth in the market is being driven by the Generation Y market
  • By 2025, nearly 60% of 20 to 39 year olds are expected to live in private rented accommodation
  • At the current rate of growth, there will be more than 7 million households living in private rented accommodation within ten years

Live with passion,
Brett Alegre-Wood

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