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Brexit’s Effect on Real Estate in the UK—And US

April 4, 2019 2:00 PM By Rob Crichlow

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Differing Opinions on Brexit’s Impact on Real Estate

As Britain's departure from the European Union looms, we are reminded daily of the impact it will have on any and every industry—including the real estate market. As I spend more time in London, I’ve started exploring the opinions whizzing around the news and by other industry leaders such as real estate and investment management solution provider MRI Software to get a pulse on what property professionals are concluding. The results were a mixed bag ranging from Brexit having a minor impact on the UK’s real estate industry to long term and significant ramifications.

A Minimal Effect, says MRI Software

Less than 25 Percent Say Brexit’s Impacts are Severe

In December 2018, MRI Software published the results of its industry-wide survey, “Charting UK Property Trends,” which took a comprehensive look at the economic, political, demographic, and technological issues impacting the UK real estate industry. The report revealed that 24%  of respondents believe that Brexit will gravely impair access to funding for developments, while 62% believe Brexit will have a minimal impact on the UK rental market, despite more than half expecting house purchase prices to decrease.

Real Estate is Always Subject to Ups & Downs

Discussing the report on the Building Success podcast, James Lavery, EMEA Marketing Director at MRI, explains: “The property industry is subject to ups and downs—not just those we’ve witnessed in the past 10 years since the financial crash, but through many previous cycles. It’s not that the sector isn’t concerned by Brexit, but they’re saying ‘we know how to handle this’—and looking at the opportunities it could provide, not just the associated threats.”

Market Confidence May Trump Brexit Effects

In a January blog penned by MRI, the real estate software company further shared its findings and conjecture, “...there is undoubtedly an underlying uncertainty that surrounds the process—and that creates concern—but, on the whole the property market is displaying confidence that it can ride out the bumps in the road Brexit will inevitably throw its way. Only in time will the full impact be seen, but for now the key players appear unfazed.”

Real estate pros in the UK and EMEA certainly have seen their fair share of difficulties in the last 20 years. Having been tested on adaptability in the recent past, it stands to reason that Brexit may just be another hurdle to overcome (one that is certainly surmountable).

A Less Rosy Perspective

Home Transactions Hit a Low

In March, The Financial Times reported that London’s housing market has ground to a halt, and that luxury home transactions in central London reached a 10-year low. Now other parts of the UK are feeling the same slow down with year-over-year house price growth this January at its slowest in more than five years, creeping up 0.1%, according to the Nationwide index, and a 0.4% rise in February.

Deals to be Found

The Financial Times reported that while the pool of buyers is reduced, those still in the market are finding deals, paying below asking and snagging low interest rates. Additionally, homeowners are quick to remortgage and take advantage of the competitive rates. According to The Financial Times, remortgaging has reached a 10-year high.

Limited Downturn Expected in London

Again, similar to MRI’s findings, the London downturn will be limited, according to The Financial Times, as a result of moderate mortgage debt in the capital compared to the value of homes.

The article concluded that this is a teetering market driven by political factors: A Brexit deal could lead to a boom in buy confidence in 2019 for the many waiting to see what happens or it could lead to a continued bad year—with no middle ground between.

Unexpected Ripple Effect in the US

Effects Abroad

In 2017, there wasn’t a single British bank that landed among the top 10 commercial real estate lenders in New York City, and HSBC was the only one that made it to the top 20, according to a Forbes article exploring the effects of Brexit on real estate. The article explained that U.K. banks may be further restricted by an increased cost of capital if confronted with a weakened economy and currency.

NYC: The Next Financial Epicenter

While much of the Brexit talk focuses on outcomes within Europe, the Forbes article suggests that looking across the Atlantic for effects deserves attention: Once you set aside the possibility of trade wars, the US’s economy, real estate market, and financial system may become recognized as one of the world’s most stable. Specifically, Forbes suggests that New York City may become “the world’s one-stop financial epicenter” as other frontrunners like Frankfort and Paris become “embroiled in a de facto power-sharing situation with other European cities.”

Forbes explains that real estate outside the U.K. may become more attractive, particularly if financial markets and foreign exchange rates in Great Britain and Europe destabilize. Interest and value in secondary markets in the U.S. could see a spike as property prices drop in Britain and possibly other parts of Europe, and real estate outside the U.K. is seen as a more reliable tangible asset.

Only Time Will Tell

While there is great debate on the effects Brexit will have on the UK’s real estate industry and conjecture about its influence on the US’s, the differing opinions make us believe that only time will reveal the true and lasting impact of Britain’s exit from the European Union. What’s your take?