Comment from Rob Thompson, Head of Real Estate London at Irwin Mitchell
Britain’s decision to leave the EU is monumental. However, property law is not heavily influenced by EU legislation and, therefore, Brexit will be a market issue, rather than a strictly legal one. In recent months, the press has been awash with competing predictions about the impact of Brexit but the almost universal consensus of economists and property professionals is that leaving Europe will have an effect on transactional activity levels in the UK property market, at least in the short term.
We are now entering an extended period of uncertainty whilst the government spends time negotiating its exit from Europe. The hope is that the UK can somehow negotiate the continued benefit of free trade whilst reducing its EU budgetary commitment and avoiding EU regulation and the requirements of the free movement of people. In short, the UK will be seeking a better deal than either the European Economic Area (as per Norway) or the European Free Trade Association (as per Switzerland) can offer. Sectors such as manufacturing, logistics and construction will also be concerned about the non-availability of foreign labour, on which they rely heavily.
We have already seen a period of outflow from commercial property funds (February reportedly saw the largest monthly sell-off since 2008) and European banks, which hold a large volume of securitised debt, may start to divest themselves of some of this debt in response to Brexit. Overseas investor and developer confidence in the residential sector will also be affected and Brexit is likely to slow, if not stall, investment in new housing development and will probably disrupt the inflow of labour and materials to the UK. There are also broader economic questions around the effect of Brexit on currency markets and interest rates. These, too, will impact on the property market as much as any other.
Many though are more optimistic and predict that, after a short term dip, the UK property market will thrive as trade is boosted due to the removal of import tariffs and the dumping of regulations. Opportunistic investors will no doubt look to take advantage of uncertain market conditions to extract greater value on acquisitions.
On top of this, we should not lose sight of the fact that the UK is an incredibly resilient and adaptable economy and it is difficult to see how the City of London will not continue to remain as one of the leading financial centres of the world. The UK is also a major focal point for the technology industry and companies exposed to this sector are much less likely to be affected by the implications of Brexit.
So all is not doom and gloom – the English legal system and the transparency of the UK property market will continue to be the envy of the world and it is difficult to see why international capital will not continue to find its way into the UK property market after an initial period of reflection and evaluation.