Economic Uncertainty Caused By Brexit Vote Could Affect UK Property Sales Temporarily

Rising economic uncertainty over the UK’s membership of the European Union in the run up to a referendum in June could affects sales of property, a new analysis suggests.

It will be a lack of clarity that could impact transactions as happened in the run up to the referendum on Scotland remaining a part of the UK in 2014, says the report from international real estate firm Knight Frank but whatever happens the real estate market should be benign.

It explains that both transaction volumes and development starts have seen healthy growth since David Cameron’s 2013 referendum pledge, and again following the Conservative Party victory in May last year.

‘Despite the resilience of the market to date, experience from the 2014 Scottish Referendum shows that we ought to expect a slowdown in housing market activity as we get closer to the poll date. The extent of this slowdown is, in reality, guesswork at the current time,’ the report state.

‘One issue we have seen develop in recent weeks is the weakening of the pound. This trend has potential implications for the central London market, where foreign home buyers are more active. If anything the weakening of the pound could provide a short-term boost to demand in the Capital,’ it adds.

The analysis explains that there is no doubt that a clear ‘remain’ vote would remove immediate economic uncertainty and market activity might be expected to recover any lost ground relatively rapidly, this was certainly the experience in Scotland following their referendum.

However, the prevailing assumption is that a ‘leave’ vote would necessarily require a period of negotiation to settle the UK’s new relationship with the EU. ‘During this period it would be fair to assume that uncertainty would continue to influence investment decisions for businesses and individuals, particularly if the question of Scottish independence is raised again,’ the report points out.

‘While the speed and terms on which this new settlement is made remain unclear, one factor suggests there will be some urgency in the process. With the Irish economy so closely linked with the UK’s the EU will be under pressure to ensure trade for Ireland is maintained. The UK’s bargaining position may also be bolstered by pressure from other organisations and countries like China, with whom the country has strengthening trade ties,’ it adds.

But it concludes that it is safe to assume the impact on the UK housing market should be relatively benign whatever the outcome. ‘The mainstream UK housing market is primarily driven by domestic dynamics. An exit from the EU would not affect the demand/supply imbalance which is a key feature underpinning current housing market trends,’ the report says.

‘This imbalance is most noticeable in London and the South-East, where decades of undersupply contribute to the on-going need for a considerable uptick in construction activity,’ it adds.

Read more at: Property Wire