While there is no doubt that the European referendum question needed to be answered in the UK, this has given many international property investors the chance to pull out of London and look elsewhere. Property market data suggest that in the first quarter of 2016 just 9% of those who bought prime London property were from other EU countries. This compares to 29% in the comparable period last year and an average of 20% over the last five years. So, what does this mean for the London property market?
Does everything hinge on the referendum outcome?
At this moment in time there seems to be significant investment funding on the sidelines waiting for the results of the UK EU referendum. It is likely that a vote to remain will see the floodgates open with pent-up demand likely to push prices higher in the short term. What will happen in the event of an exit vote remains to be seen because in reality, while there is much speculation, nobody has any idea what will happen.
As we have mentioned on numerous occasions, the greatest challenge to any investment market is confusion and uncertainty. We have confusion about the outcome of the forthcoming referendum and we have uncertainty, at least at this moment in time, about the landscape after the referendum.
Sterling weakness having no impact
In a perfect world a fall in the value of Sterling against the Euro in the region of 10% would be a major plus point for European property buyers. This is a significant “discount” which has arisen because of the uncertainty surrounding the forthcoming referendum. So, if European investors were so certain that the referendum will result in the UK remaining part of the EU why are they not taking advantage of this recent weakness in sterling?
Even though the vast majority of voting polls suggest that the remain camp will be victorious there does seem to be genuine uncertainty across investment markets.
Are investors looking elsewhere?
Historically French and Italian property investors have been particular fans of the UK property market with London in particular proving something of a magnet. We all know that France is the top European tourist destination so maybe property investors will now be looking towards this particular market in the future? If you also factor in weaknesses in the Spanish and Portuguese property markets then perhaps this period of doubt in relation to the UK/London real estate sector could change the landscape for the foreseeable future?
Well, this is probably what supporters of the European property market, excluding the UK, would have you believe. However, statistics show that time and time again the London property market has bounced back from disappointment, uncertainty and confusion. Therefore it is highly unlikely that investors will shun the UK in the longer term, whatever the outcome of the referendum, as London is one of the major real estate markets in the world.
This pause in demand for London property while the UK EU referendum comes to a close may not necessarily be a bad thing as it has deflated some areas of the London/UK property markets which had perhaps run too far in the short term. The clever money still seems to be on the UK remaining within the European Union although time will tell – but one thing history tells us, never write off the London real estate market as a busted flush.