Christian Ulbrich, chief executive of JLL, has given UK real estate investors some hope for 2017 suggesting that London will remain the safe haven of the real estate world. It is very encouraging to start 2017 with such encouraging words from somebody who certainly has their finger on the pulse. So, why will London remain a real estate safe haven? Will there be a long-term shift in investment strategies post Brexit?
Currency attractions
We can look at the pros and cons of Brexit all day long but the fact is that overseas investors looking at UK real estate, especially London, get a lot more bang for their Buck since the Brexit vote. The UK currency has fallen in excess of 20% against the dollar and there are similar drops against other major worldwide currencies. So, a property which a foreign investor deemed to be fair value prior to the fall is now 20% cheaper at the touch of a button. What is there not to like about this as a foreign investor looking at UK real estate?
Optimists will suggest that the UK currency will eventually bounce back but it would take a monumental shift from current rates to get anywhere near previous levels. So, for the foreseeable future it looks like we will have a relatively weak sterling which will only benefit foreign investors.
Softer London property prices
Anybody who follows the UK real estate market will know that London has been “talked down” for many years even prior to Brexit. The market was too high, prices were inflated and money-laundering was rife are just a few excuses used to attack the value of London property. The fact remains that both domestic and overseas investors still have an appetite for London property although some of the froth has certainly been blown off the top of the market since the Brexit vote.
Again, some sceptics may suggest this is the start of a significant downturn but every time the market softens there appears to be strong demand from investors buying on weakness. So, it is difficult to see the London property market falling too far in the current environment especially when you bear in mind the worst-case Brexit scenario has already been assumed by many investors.
Chinese investors
Aside from the fact that UK real estate now looks significantly cheaper to overseas investors because of exchange rate movements, Chinese investment a set to ramp up significantly in the short, medium and longer term. There has been growing demand for UK property from Chinese investors over the last few years and many are now investing on the hope of a rebound in London property prices. It is fair to say that Chinese property investors have been influencing other markets around the world but such is the quality of property available in London that it will remain at the forefront of many real estate speculators minds.
Competition overseas
Interestingly Christian Ulbrich believes that France and Germany will be the main competitors to the UK prior to any Brexit EU/UK arrangement. These two markets have performed admirably over the last year or so taking significant real estate investment “from the UK market”. However, the UK is fighting back, 2017 could be a rebound year and positive comments from Theresa May regarding any Brexit arrangement have delighted investment markets.