Would property investment be damaged by Brexit?

01 March 2016 7614 Views

Unique summary: What does a potential exit from the EU mean for the UK's property market.

Ever since the recession hit much of the world, the UK, and in particular London, has been seen as a safe haven for property investors from around the world. With capital gains potential and returns high, people from across the globe have piled money into various parts of the property market for some time now.

But would this strength seen for a number of years be affected by a potential exit from the EU? On June 23rd, Brits will take to the polls to vote in a referendum about whether or not we should remain a member of the EU. Were we to exit, what would be the impact on the investor sector, and are we already seeing something of an effect even in the run up to the vote?

Before: Uncertainty

One thing that affects the property market more than anything else is uncertainty. Generally speaking, people put their money into the sector because they think it's safe, but political uncertainty puts this at risk and means people are not sure about what change will mean with regards to their investments.

This sort of uncertainty can be witnessed around most elections in the UK. For example, in the run up to the last general election, there were worries about what a win for Labour would mean for the wealthier homeowners in London, which slowed sales of two million pound plus properties, before the number of buyers almost immediately rebounded in the aftermath.

Peter Rollings, chief executive officer at Marsh & Parsons, said that this atmosphere is present in the run up to the referendum, especially with foreign investors unsure about whether or not it's a good time to put their money into the market.

"First and foremost, foreign investors may be more tentative given this latest turn in events, especially as it follows hot on the heels of higher Stamp Duty for million pound properties," he said.

Of course, uncertainty is a temporary factor, and should the UK voters choose to stay in the EU, the likelihood is that the nation's property sector would immediately see a ramping up of interest from foreign buyers. But what would the UK leaving the EU mean for the sector?

After: The impact of leaving the EU

Should Britain vote with its feet and choose to sever ties with the EU in June, the impact on the property market would almost inevitably be negative, especially with sentiment plummeting. According to surveys, more and more investors are now seeing the potential for an exit as a negative factor.

CBRE's latest survey shows the number of people who believe there would be no impact from Brexit has fallen from 33 per cent in 2014 to just 21 per cent now. The number who believe the UK would be a worse place to invest has risen in the same period from 32 per cent to 46 per cent, showing that sentiment from buyers could be seriously affected.

"Property investors have, over the past three years, become increasingly gloomy about the impact of the UK leaving the EU. The UK has experienced record property investment in the last few years and the property investors we surveyed fear that a Brexit would adversely affect the attractiveness of the UK as an inward investment destination," said Miles Gibson, head of UK research at CBRE.

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