The forthcoming UK referendum on the future of the country’s membership in the European Union is already showing some effect on the property markets with decision processes coming to a slowdown.
The Royal Institution of Chartered Surveyors (RICS) had a look at the situation’s current impact as well as what the possible outcome of a leave and stay vote could be.
The institution once again highlights the gap between supply and demand in Britain’s residential property market. Residential investment transactions within the sector have slowed down and house buying actions were limited across the house price spectrum.
“This is not unexpected as there’s usually a slowing of residential transactions before any national poll. After an election vote we typically see the residential sector recover and bounce back as stability and confidence returns,” the report says
“Should the UK opt for a Brexit, we could assume that uncertainty could linger while the UK Government negotiates new trade deals and relationships with the EU and third countries,” it adds.
In its analysis, the report reveals that the lower to middle priced property market is mainly directed by domestic participants, which is why the uncertainty has had less of an impact on demand and house prices at this end of the market in comparison to the higher end.
However, a significant number of higher end properties, particularly in London and the South, are purchased by EU and non-EU individuals. The report suggests that a Brexit could see less demand for higher value properties from those individuals, which would lead to a relief in demand for higher end residential property. “We can, therefore, suggest house prices could decrease in the immediate to short term,” the report states.
Similarly, the report also suggests an effect on student accommodation. The first three quarters of 2015 all together saw a total investment of $6.5bn in the UK student accommodation sector. “Changing higher education enrolment rules could deter international students thus affecting demand for student and PRS accommodation,” it adds.
The report also points out that this concern is generated by a series of unknowns for decision makers. The debate in the lead-up to the vote creates risk, the uncertainty over the outcome creates even more risk and then, on top of that, the uncertainty over the process that might follow an exit creates a whole other layer.
And then, finally, there would also be some uncertainty over any kind of renegotiation in case the UK decides to remain in the EU.
“Anecdotally, this uncertainty has already had an impact on decisions in property markets and heightened the perception of risk attached to the UK. Investors are hesitating, occupiers re-planning their footprints, and building pipelines are slowing,” the report says.
It explains that the closest comparison that can be drawn is the Scottish Independence referendum in September 2014. RICS, however, believes that the EU referendum will have a greater impact, as the possible geopolitical and economical change could be significant.
“While investor and occupier confidence were affected by polling results in Scotland, just as we are seeing in the UK now, property markets readjusted quickly following the No vote. RICS members expect the same resurgence across the UK if the decision is to remain,” the report says.
“Before any national poll there is usually a slowing of residential transactions. Potential home buyers generally delay their decisions to purchase a home and investors stall on completing financial commitments. After an election vote we typically see the residential sector recover and bounce back as stability and confidence returns,” the report explains.
“However, the outcome of Brexit could provide an alternate effect. The No result of the Scottish referendum saw a housing transactions recover in the immediacy and we would expect the UK to follow suit should the electorate vote to remain an EU member. Should the UK opt for a Brexit, we could assume that uncertainty could linger whilst the UK Government negotiates new trade deals and relationships with the EU and third countries,” it adds.
Source: Property Wire