Real Estate Investor Magazine South Africa December/ January 2018/2019 | Page 52

UNITED KINGDOM
The Brexit Effect:
Will It Really Affect the UK Property Market?
BY TOM HODSON
T
here’s no doubt that Brexit has been one of the most
debated topics of late, but how much of this is just
speculation? And for residential property investors,
will Brexit really affect the UK’s property market or are there
bigger factors at play?
How much Brexit is likely to affect different industries
depends on a number of factors, such as; how much those
industries rely on international import or export and how
much they rely on workers from overseas.
For the UK residential property market, the biggest
influencer is supply versus demand. The market relies on
demand from people living in the UK and will remain largely
unaffected by Brexit, with forecasts showing a growing
appetite for UK residential property.
Demand for rental properties across the UK continues to
grow, significantly outstripping supply. If landlords are exiting
the market, meaning potentially fewer properties on the
market available to let, this means even greater demand, which
may push rents up. This has been indicated recently with rents
in the UK reported to be up 1.7% over the past 12 months and
a joint report by Reapit and Dataloft citing that lease signings
up 3.5%, while supply has declined 6.9%. Not good news for
the UK’s renters, but for investors still looking to gain from the
property market, it’s positive – they are seeing greater potential
for passive income.
That isn’t to say that Brexit has no impact. It’s simply more
important for investors to realise that an indirect impact is
more likely, the fear-factor of what could happen which is
ultimately the market takes a downward turn and prices fall.
While a drop in value is never a welcome occurrence,
seasoned investors will know that if Brexit does trigger a
downturn, it’s essentially a catalyst for the inevitable up-down-
up cycle. Property, like any other investment, experiences shifts
in the market over time, once it’s been down, it generally
comes back stronger. Historically, the UK’s house prices have
fluctuated over each 10 - 15 year period but almost double in
value from the beginning of that period to the end.
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DECEMBER 2018/JANUARY 2019 SA Real Estate Investor Magazine
Furthermore, if investors are slowing down their buying
activity because of uncertainty over Brexit, seasoned and
active investors still confident in the market will see this as
an opportunity to purchase whilst others hesitate and reap the
rewards when less savvy investors do rejoin the market.
Looking at the UK’s house prices since Article 50 was first
triggered on March 28th 2017, on average they have risen by
8.13% (from £215,078 to £232,554), according to the latest
ONS UK House Price Index report, and whilst the rate at
which they’re rising may be slightly steadier than pre-Brexit,
those prices are still going up.
It’s also important to consider that the effects of Brexit
may not be felt until the future and beyond. Oliver Knight,
an associate at Knight Frank, believes that this unclear future
is having the biggest effect on holding further growth back,
perhaps suggesting a surge may be around the corner:
“There is a lot of uncertainty in the market as to where we
are with Brexit… That has really kept a lid on further growth.
There is a wait-and-see attitude.”
Looking forward, there is no sign that people will stop
investing in the UK property market. Market demand is
continuing to skyrocket in certain areas, heavily outweighing
the available supply. This is coupled with the rising popularity
of city centre living, especially in affordable regional cores
like Birmingham that are pushing massive redevelopment.
Property also remains a relatively secure investment with stable
returns. The investment community is clearly positive about
future prospects in the market, even with the uncertainty that
the change brings.
So back to the original question, does Brexit pose as much
of a threat to the UK’s residential property market as we think?
The answer is no. There are quite simply bigger factors at play,
which all come down to supply and demand.
SOURCE: Seven Capital www.sevencapital.com
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