Possible implications on the London property market following the referendum decision....
Now that markets have digested the somewhat unexpected outcome of the EU referendum, we can start to analyse the possible implications on the London property market.
Stock market indicators
Investors have spoken. Friday, the day the result was announced was characterised by capital flight to safety, a sharp fall in the pound and a drop in the major stock market indices. Shares of UK banks and of UK builders fell by around 20%. The FTSE 100 initially fell 8% then recovered in late trading on the back of strong demand closing 3.15% lower on the day. Not a good start but all quite predictable.
After a weekend of reflection and political posturing, Monday and Tuesday was characterised by further weakness. The markets then started to calm down on Wednesday and by the end of the week reversed some of the losses of the previous days. The pound appears to have settled at US$1.33 against the dollar and at €1.20 against the euro at least for the time being – attractive levels for British exporters and investors buying sterling denominated assets.
In the coming weeks and probably months we expect volatility in the stock and currency markets driven by ongoing political and economic announcements and events. Throughout this period, we expect interest rates to remain low, the pound to fluctuate but remain weak, and inflation to potentially climb as the costs of imported goods will increase.
Timing and opportunity
In times of global uncertainty, the London property market tends to become more attractive as it is viewed by investors as a safe asset to hold. If we look back at what happened to the property market in prime central London as the the 2008 financial crisis broke, one will note that the immediate impact was a drop in the level of transactions and prices. Within 12 months though prices started to climb as 'early bird' investors returned to the market lifting property prices back to pre crisis levels within months.
Although today's situation is somewhat different, investor behavior has not changed and the long term fundamentals and attractiveness of the central London property market are also unlikely to change. As negotiations get underway, the UK will begin its journey towards stability which may well result in the normalisation of capital flows back into the UK fairly soon.
In the short term property prices across central London will probably soften. Experienced investors and smart money will sense the buying opportunity and will take positions ahead of the broader market. Such investors take a long term view of the market and are able to move quickly in order to take full advantage of currency and asset fluctuations. Despite these uncertain times our view is that because of its unique characteristics, property in prime central London remains a strong long term asset class that will continue to perform well over time.
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Disclaimer: this newsletter is provided for general information only and is not intended to be nor should it be relied upon as legal advice in relation to any particular matter.
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