May 25, 2016
The UK referendum on 23rd June on whether to leave or stay in the European Union is one of the most important political issues of the decade. With both ‘Remain’ and ‘Leave’ camps now increasingly lobbying for support, what about the economic consequences of a potential Brexit? How would the British property market be affected?
In the short term, a vote to exit the EU would leave the UK with an uncertain economic future. While the country would be coming to terms with the new reality, renegotiating trade agreements and economic relationships with its former EU partners, the economy would be in a state of flux, with financial markets feeling the consequences. George Osborne recently spoke of an ‘”economic shock”, predicting a 18% fall in house prices in the next two years if the UK left the EU.
He is not the only one to be concerned. According to Credit Suisse, a Brexit would lead to a fall in GDP, in share prices and also in property prices. According to a recent KPMG survey, the effect of a Brexit on the UK property market is viewed with scepticism, with 2/3 of real estate experts believing that “Britain leaving the EU would have a negative impact on inbound cross-border investment,” London being hardest hit.
In the run-up to the referendum in London, from Kensington to Shoreditch and beyond, many buyers are already nervous, choosing to remain extra cautious while awaiting the outcome of the public vote. According to several City law firms, it has become popular to add Brexit clauses to commercial property contracts, allowing buyers to pull out of purchases in the event of a Brexit.
Ciaran Carvalho, senior partner at Nabarro, said: “We have seen a marked increase in the number of contracts which include clauses to protect the position of buyers investing in UK real estate ahead of the European Union referendum.” He added, “Brexit is a leap into the unknown. Brexit clauses are a pragmatic, legal response to that uncertainty.”
Similarly, a Mayfair estate agent reported that vendors are keen for property deals to progress smoothly in the weeks leading up to the referendum, with buyers being reassured to “stay calm but carry on and, if you do not like the result, then we will rescind the contract”.
Clearly, the referendum itself as well as a potential Brexit outcome are causing much uncertainty, to which the markets are responding as expected. While many ‘Remain’ campaigners are warning about the negative short-term issues for the UK property market, the ‘Leave’ campaign has been more positive about Britain’s longer term economic prospects.
If the UK economy were to attract a greater level of inward investment as a result of having thrown off the shackles of EU regulation, the property market would surely benefit in the longer term. It may be the case that demand for UK property is strong enough to withstand a short-term Brexit blip. While the prime position of London would remain unassailable as far as one can tell, Britain’s secondary cities would appear to be promising growth markets.