As we move ever closer towards the UK referendum on EU membership there are concerns that a vote in favour of Brexit could result in support for worldwide money markets evaporating. We only need to look back at the 2008/9 crisis which resulted in a worldwide economic downturn to see the impact of reduced funding in money markets. When you also bear a mind that worldwide interest rates are on the whole at historic lows these will certainly be testing times for the worldwide real estate market.
We recently saw a report from US investment giant PIMCO suggesting that US commercial real estate prices could fall by 5% over the next 12 months. One reason given for this potential fall was the rollover of debt maturities from the last decade, an exuberant period for the real estate market, as money markets become more concerned about worldwide economic events.
While some may see this as scaremongering, it stands to reason that if the UK votes in favour of Brexit this will at best cause short-term confusion and at worst medium to long term repercussions for not only the UK but Europe and beyond. When you bear a mind the amount of real estate traded on a regular basis, and the enormous debt covered by real estate assets, this could be a major problem for the property market in the short to medium term.
Repercussions for the UK and Europe
If the UK was to vote to leave the European Union this could have a serious impact upon the UK property market in the short to medium term. While the UK is a prominent member of the European Union it has an opt-out which has seen the country maintain sterling as its currency. Is this one of the main attractions for foreign investors, the fact that the UK has no direct exposure to the euro?
The euro is obviously dependent upon the underlying strength of EU member states and we only need to look at the likes of Greece to see current issues with the likes of Spain, Portugal and France also struggling. Confusion and concern would also have an impact upon the euro and as a consequence a potentially large impact upon money markets not to mention the real estate sector.
Is the European project unravelling?
Over the last few days we have seen European leaders talking about life in the European Union after the UK has left. On the surface EU member states seem to be united in their determination to continue the European project but behind-the-scenes there are rumours of conflict and fallout. Many are surprised that the European Union has not offered an olive branch to UK voters in the form of concessions in relation to immigration and other prominent issues.
In what is proving to be an extremely dangerous game of poker it is difficult to predict the outcome at this moment in time although confusion and concern will certainly prevail in the immediate aftermath of the referendum – no matter what the result.