The Brexit debate has been raging on for weeks and the rhetoric has become laboured and repetetive. The constant scaremongering, the repetitive sound bites by both camps and a very confused general public have characterized the discourse of this debate. The property sector has not been immune from this phenomenon, so at iproperty log we have put our research and analysis hats on to distinguish between the scare mongering and the facts.
At iproperty log we take the position that neither a Remain nor a Brexit would be a disaster for Britain. London wouldn’t suddenly stop being a financial centre, Europe wouldn’t stop trading with the UK and we wouldn’t become a stagnant economy. However, one thing Brexit would cause is uncertainty, and we take the view that given the last couple of years of economic stability, it would be best not to take such a gamble.
In terms of Property some very reputable organisations and companies have claimed that a Brexit would contribute to the housing crisis. A study by KPMG found that 66 percent of real estate experts believed that Britain leaving the EU would have a negative impact on cross-border investment. The main consequence of this would be that it would add to our current crisis, where the demand for housing is exceeding the amount of houses being built. A decrease in foreign investment would mean less homes being built and therefore, the housing crisis would be exaggerated.
However, the leave camp has a strong counter argument against this. London, in particular has always attracted foreign investment, the lifestyle, education and appeal of the city will not go away if we leave the EU. David King, Head of Winkworth’s international department claims, “I can’t foresee any stipulations being too problematic. Indeed it is likely that those looking to buy will just need to make sure that they can confidently negotiate the process. “
King is most likely right in his assertion, investment will become more difficult to begin with but once foreign investors learn how to negotiate the process they will probably continue to invest anyway. However here at iproperty log we feel that even the short term uncertainty would be best avoided. Why risk putting off a vital source of property investment? After all foreigners account for 49% of property investments in London. Two thirds of investors surveyed by KPMG said they would slow down activity in the UK in the event of a Brexit until new terms were agreed with Europe. Soundings from Europe indicate that they won’t happily negotiate favourable terms with a post-Brexit Britain.
The other major issue that has arisen is George Obsorne’s assertion that House prices will fall in the event of a Brexit. The Chancellor puts the exact figure around 18%, this has only added to the notion that Remain is promoting a “project fear”. But it seems that this figure hasn’t been pulled out of thin air, it is based on research and analysis by the treasury. One important thing to flag up is that if you are a first-time buyer, a fall in house prices would be a welcome relief. However, the chancellor claims that mortgage rates will go up, therefore, a Brexit according to Osborne will be damaging for first-time buyers as well.
We investigated Osborne’s prediction more closely and it does hold weight. Most economists have concluded that there will be a short term shock if we leave the EU. Short term in this context doesn’t mean a few months but rather years. Immigration will decrease as the Uk will be a less attractive destination, and the initial shock and instability will have a negative effect on wages and output. This combined effect will lead to lower house prices but this isn’t good news for first-time buyers. Not only will their mortgage rates increase but their wages in real terms will likely be lower for the foreseeable future.
As stated earlier, iproperty believes that whatever the decision of the British people on June 23rd ultimately neither outcome is a disaster. But a Brexit will cause short-term uncertainty and instability that will have negative ramifications for the Property industry. These negative effects won’t last forever but are they really worth the risk? The answer to this question comes down to where you stand on issues outside of the property sector such as sovereignty, security and national identity. Don’t believe all the scare mongering but also be aware of the short-term dangers that may lie ahead. We may become a dynamic tiger economy but is a few years of pain really worth the gamble?