By Jerald Solis, Business Development and Acquisitions Director, Experience Invest
As expected, the opening weeks of 2019 have been dominated by Brexit. The latest development – albeit a predictable one – saw Theresa May’s proposed withdrawal agreement roundly rejected by MPs, leaving the UK with no clear or determined path for leaving the EU.
It has become clear that finding a Brexit deal that appeases the entire spectrum of interests inside and outside Westminster is an almost impossible task. What’s more, the prospect of a ‘no-deal Brexit’ – something originally touted as the last resort – has fast become a real possibility come 29 March.
But what does a ‘no-deal’ arrangement actually mean? And, more importantly, what impact could it have on the real estate market?
In short, a no-deal Brexit would mean that, as of 11pm on 29 March, the laws and regulations binding the UK and the EU together will be absolved, and instead replaced with World Trade Organisation rules on trade. Beyond this, however, there are very few specific details on how a no-deal Brexit would be managed in the long-term, which is why some people are weary of such an outcome.
There’s no shortage of speculation what it may entail, though; some forecast a sudden and sharp drop in the value of the pound in the event of a no-deal, while others predict an exodus of EU workers, particularly in the construction industry. At the same time, many Brexiteers – such as Boris Johnson MP – have touted no-deal Brexit as the preferred result.
What can be said with confidence is that a great deal of uncertainty remains about the terms of the country’s departure from the EU and how it will impact various markets. Yet, when it comes to specific sectors, like property, an analysis of recent trends can offer useful insight into what Brexit could mean for the real estate market, both for prospective homebuyers and investors.
Looking beyond London for capital growth
Since the EU referendum in June 2016, the UK property market has proven resilient. Driven by high demand and limited supply, average house prices have continued to rise across the country as a whole, albeit at a slower rate in some regions.
By using house prices as an indicator of capital growth, many investors have enjoyed significant gains in the value of their bricks and mortar assets over the past 30 months. This comes despite some predictions of a price crash in the immediate aftermath of the referendum.
When looking further into the performance of the market, however, what becomes apparent is the contrast between London and rest of the country. While prices in the capital are the highest in the UK, investors have not been earning the same amount of capital growth as seen in other parts of the country. Indeed, the result has been that a number of new property investment hotspots have begun to establish themselves in different corners of the UK.
Measuring house prices in the 12 months leading to October 2018, Hometrack’s UK Cities House Price Index revealed strong performances in Leicester, Liverpool and Cardiff, at a respective 7.7%, 6.0% and 4.6%. Over the same period in London, house prices had in fact contracted by 0.4%.
The reasons for this contraction in London range from housing affordability through to investor hesitation stemming from Brexit. And given the amount of investment that is being injected into the UK’s regional cities, we are likely to see places like Liverpool and Cardiff remain thriving hotspots for buy-to-let investors in the long-term; the current evidence shows that Brexit is not having a notably adverse effect in this regard.
The popularity of commuter towns
London is a global city accommodating some of the largest businesses in the world. Whatever the outcome of Brexit, London will by all accounts remain an important epicentre for innovation, productivity and growth. However, for those working in the capital, buying a property will remain a challenge.
Given the issues of affordability, we are currently seeing a significant influx of London workers moving to commuter towns, which offer modern and affordable living options in new-build complexes. Luton is a prime example – the city is receiving over £1.5 billion worth of investment as part of a major, town-wide transformation. This includes the upgrading of existing infrastructure and the building of new facilities to cater to Luton’s growing population.
What’s more, the long-term nature of this modernisation project goes well beyond the Brexit period, ensuring that as we move into 2020 and beyond, Luton could present significant real estate opportunities, particularly when it comes to affordable new-builds.
This is just one example, though. In various towns and villages surrounding London, lower prices are attracting investors and homebuyers who want to remain linked to London’s business and cultural hubs but are looking for greater value from their bricks and mortar purchases. This is a trend that is likely to continue – if not accelerate – following the UK’s departure from the EU.
New-builds and the housing crisis
Away from property prices and real estate investment, there are more fundamental problems to be addressed, both now and after Brexit. Namely, the housing crisis: one of the most significant long-term challenges facing the UK property market.
At the moment, there are simply not enough homes available to meet demand. And despite what might happen on 29 March, this imbalance will remain a key issue within the housing market post-Brexit.
The Government has set a target of adding 300,000 properties to the market per year by 2022. But just how the Government will achieve this target is somewhat unclear; amidst the Brexit uncertainty, there needs to be greater clarity on how its goals will be met.
As is true of many political, economic and societal issues across the UK, it is vital that Brexit does not derail domestic policy. Pertinent issues – such as the need to build more houses – cannot afford to be put on the back burner while the country awaits discussions in Westminster and Brussels to reach an amicable conclusion, and this must be recognised by the Government over the coming months.