The looming Brexit referendum is sending property investors into a bit of a worry whirl. What are the implications?
Come June 23, UK citizens will vote on whether the nation should withdraw from the European Union. While there is still time before that happens, the uncertainty is a cause for concern across all industries in the UK. Here’s a Brexit FAQ specially for investors looking to invest in property in the UK.
What is Brexit?
Brexit refers to the campaign for a British Exit from the European Union, to end control by Brussels and give Britain the freedom to manage its own affairs. The referendum takes place on June 23. Currently, both factions are almost equally matched, with the pro-Europeans slightly ahead.
What are the general economic implications of the current lead-up to Brexit on the UK?
Clearly, the uncertainty has directly affected the market, resulting in, among others, (i) the drop of the British pound, (ii) the slide of share prices (iii) some major international investors withholding from committing to luxury property until after the referendum, (iv) some contracts exchanged on UK deals being conditional on a vote to remain, and (v) softening of business confidence.
What if UK exits the EU?
There is uncertainty over what would happen if the UK withdraws from the EU as Brexit is a future hypothetical event and largely lacks definition. In the short-term after the exit, we foresee a period of uncertainty as new terms of engagement with Europe are worked out. The UK economy may suffer in that short-term, but we are confident that it will right itself in time. The British pound will also weaken in the short term, but rise soon enough once the market acclimatizes to the situation.
How will UK and London’s global standing be impacted by Brexit?
The UK was a global economic superpower and London one of the world’s strongest financial centres even before it became part of the EU. We are confident the UK will eventually find its footing again should it exit the EU. Reports have also shown that investors are generally more positive about the longer term state of a UK out of Europe.
Will Brexit affect housing in the UK?
There is no serious economic analysis to suggest that all trade with the EU would cease in the event of Brexit. The most immediate and significant slowdown in investment would be pre- and potentially post-Brexit, due to uncertainty of the former and instability of the latter.
The value of the pound will likely diminish in the short term and there is risk of a sharp change in interest rates which could cause the housing market to soften. However, the UK is already facing a shortage in housing now, which won’t change in the event of a Brexit.
The possibility of dropping prices or a cheaper pound allows some investors to take advantage of less competitive processes as the property industry will bounce back in the long term, resulting in higher yields. For foreign investors, a softer sterling means they can get more for their money, while the immediate instability in the market would mean the chance to invest in property that is highly likely to recover at a later date.
London’s housing market would be impacted significantly, but if you’ve always wanted to buy property in London, this is the time. As explained above, we are confident it will eventually find its footing again as London had always been a financial capital even before it entered the EU.
What if the UK remains in the Euro Zone?
The British pound will strengthen substantially as the market has priced in the uncertainty resulting from Brexit, which has resulted in the weaker currency in recent months.
The Brexit referendum has created a temporary situation of a weak pound which has paved the way for a tremendous buying opportunity for foreign investors compared to early 2015. The current exchange rate is at RM5.50 : £1 compared to RM6.80 : £1 as at late 2015. This is a one-time opportunity for foreign investors to take advantage of the situation.
CSI Prop proudly promotes international investment property with high yields at low risk. Our portfolio comprises residential and purpose-built student property in cities across the United Kingdom (London, Luton, Manchester, Liverpool, Newcastle, York, Glasgow, Scotland; Sheffield, etc); Australia (Melbourne, Perth, Brisbane) and Thailand (Bangkok). Our projects are concentrated in high-growth areas with great educational, infrastructural and job growth potentials. We aspire to make a difference in the lives of our clients by helping them achieve their investment goals through strong market research backed by third party experts and due diligence.
Disclaimer: CSI Prop does not provide tax & legal advice and accepts no liability. Readers are encouraged to consult a qualified tax or legal advisor for a thorough review.
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