On 23 June 2016, Britain voted to leave the European Union (EU) in a historic referendum. The road ahead is uncertain. This is the first time a country is leaving the EU, and the rules for exit are uncertain.
How will Brexit, as they call it, affect property prices in the UK, Singapore and all over the world? We examine the possible ramifications for Brexit on real estate markets.
1. UK Housing Market Set for a Severe Slowdown
Shares of property developers in London like Persimmon, Taylor Wimpey, Berkekey Group and Barratt Developments all crashed in excess of 20 percent after the vote, indicating that traders expect a severe slowdown in the housing market.
“A few gloomy headlines and people will understandably sit tight and play it out. However, this lack of activity in the residential market will prompt a fall in buyer demand and this is what will result in a drop in property prices.”
– Russell Quirk, CEO of eMoov.co.uk
2. UK Property May Look More Attractive to Overseas Buyers
With the British pound crashing as much as 10 percent against the US dollar after the referendum, international investors might be tempted to look at UK properties again. Coupled with a probable fall in housing prices, UK real estate might look even more attractive to overseas buyers who will look to pick up bargains.
3. Impact on UK Housing Prices Unclear
The exact impact on UK housing prices is less clear. While immigration is expected to be tapered post-Brexit, and jittery investors may pull out of the UK, demand continues to outstrip supply, and renewed interest from overseas buyers may stem a drop in housing prices. Investors would definitely exercise greater caution as uncertainty reigns, but don’t bet on them writing off UK property completely. Overall, it would be fair to say that the risk to UK property is towards the downside, even though the extent of the impact is unclear at the moment.
4. Flight to Quality May Ensue
As uncertainty prevails in the UK and EU over the next few years, cautious investors might look to other international safe havens to park their money instead. This flow of global capital may benefit popular real estate markets like the US, Canada, Australia, and Singapore, among others. Caveat emptor, as currency fluctuations might either diminish or enlarge their investment. Overseas investors who bought UK properties saw the value of their investments drop by 10 percent overnight due to currency loss. These investors and many like them will likely be more cautious about investing overseas and will put their money in higher quality markets.
5. Interest Rates to Remain at Rock Bottom
All bets for another US Fed rate hike this year are clearly off the table after the Brexit has caused widespread carnage to global markets amidst heightened uncertainty about the global economy. This means that global interest rates are likely to remain low for the foreseeable future. This will come as a relief to many landlords who have been expecting a rise in mortgage rates. Clearly a boost to property prices around the world, not just in the US, but also in Singapore, whose interest rates are closely tied to those in the US.
6. Turbulence in Stock Markets May Benefit Real Estate
Global stock markets wiped out more than US$2 trillion of value on the day of the Brexit, the largest single-day drop since 2007, as investors dumped risky assets. Get set for more turmoil in the stock markets as uncertainty and anxiety looms over how the Brexit will play out over the next couple of years. The volatile stock market may lead more investors to flee to the more stable real estate market, which may lend support to property prices globally.
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