Not a day goes by where articles predicting the UK’s future after Brexit don’t fill the papers and this week has been no different. The predictions are looking bleak but the generally negative outlook the papers are pushing is at odds with the moves I know some investors have taken due to their unrelenting confidence in the UK property market. Today I’ve decided to round up some of the market predictions, price trends and transactions I’m aware of to try and give an overall picture of the market as it is and as it might be.
In the residential market, KPMG revealed a few days ago that it thinks UK house prices could fall anywhere between 6% and 20% if Boris Johnson pursues a no-deal Brexit. In London it predicts that house prices could fall by 7%. Such an outcome is looking unlikely in the near future as events over the last few days suggests it’s very unlikely that Britain will leave the EU on 31 October, with or without a deal. However if it does leave next month with a deal, KPMG suggests that house prices would rise, growing by about 1.3%.
In the commercial property market, which has seen falling prices, it seems that RBS and Lloyds Banking group are most at risk of losses. RBS reportedly has £25.2 billion of commercial real estate loans on its books and Lloyds has £18.1 billion. As part state-owned lenders the collapse of either bank would mean taxpayers losing out but the Bank of England, which is closely monitoring the market, isn’t hugely worried reporting that the banks are in a far more robust position to deal with shocks than they were during the financial crisis, having increased the amount of capital they hold significantly.
Fears of a no-deal Brexit since the change in premiership have also hit investor appetite for UK property funds which suffered net withdrawals of £410m in July – the highest monthly outflows since January. But other reports suggest that foreign investor interest in directly purchasing property was up in August. For example demand from Hong Kong investors for residential and office buildings in London more than doubled from August last year and while this was partially driven by the recent unrest in Hong Kong it also shows that London’s status as a place of social, financial and political security remains intact. Of course it also helps that sterling is still hitting record lows making London a very attractive prospect, particularly for investors that can hold assets for the long term. In fact, Hong Kong billionaire Li Ka-shing recently agreed to buy the brewer and pub operator Greene King in a deal valuing it at more than £4.5bn.
Also positive, Norway’s $1 trillion wealth fund CEO, Yngve Slyngstad, was interviewed this week saying that NBIM is a long-term investor in the UK and that no matter what the outcome of Brexit this won’t change. Since the 2016 referendum the fund has added to its already large number of London real estate holdings.
From all these reports it’s hard to say what 2020 holds for the UK property market and I would suggest that a few shocks are in store but like Mr Slyngstad I’m betting on the UK property market looking positive in the long term. Despite the infighting and name-calling we’re seeing from the UK’s current politicians the UK’s political and legal system makes it attractive to investors, both foreign and domestic, and I think this will continue to be the case. It may just take some time for the dust to settle and growth to return.