We’ve seen all sorts of expert reports about how Brexit would affect the economy, and we’ll probably see a few more yet, but with each one, I don’t know about you but I get more and more confused and unsure, swayed both one way and then the other.
A report produced by Cebr, an independent economics and business research consultancy established in 1993, for NAEA and ARLA, provides forecasts and advice specifically aimed at property and is perhaps something worth paying attention to for those of us involved.
The Report’s Key findings include:
- In June, the UK will hold a referendum on whether or not to remain a member of the European Union. A scenario in which the UK votes to leave the EU (Brexit) would have far-reaching consequences on the country’s property market.
- Savills, a real estate services provider, estimates that in 2013/14 68% of buyers in the prime London market were UK nationals. Out of all the prime sales to non-UK nationals in the year to June 2013, 16.5% were to nationals of European countries.
- Not all UK regions would be impacted equally following Brexit. London has by far the highest share of EU nationals and nearly all of the prime investment property is located in the capital.
- Based on the Office for National Statistics’ projections, under the low migration scenario (which becomes more likely following Brexit) the population of the UK would be smaller by 1.06 million people in 10 years compared to the principal forecast. Lower immigration would mean less people looking for accommodation which would reduce the demand for housing.
- Brexit would also impact the supply side of the property market. The construction sector is already facing skill shortages and 4.7% of the UK’s construction work force was born in another EU country.
- The UK’s membership in the EU gives the country status as a ‘gateway to Europe’. This has a direct impact on the property market: for commercial property, the substantial presence of foreign firms boosts demand. For residential property, demand is impacted by the large number of foreign staff that relocate to the UK as part of their firms’ involvement in the country.
- Should the UK remain in the EU we expect the average UK home to cost £303,000 by 2018. This compares to £290,800 in 2017 and £278,500 in 2016. Under the Brexit scenario we expect the average UK home price to stand at £277,600, £288,900 and £300,800 in 2016, 2017 and 2018 respectively.
- The cause behind the slower rate of growth in the event of a Brexit will be the London market as the capital’s safe haven status would be damaged and the decision to relocate by some foreign firms would dampen demand.
- Under the Bremain scenario we expect the average London house price to stand at £536,000, £564,500 and £599,200 in 2016, 2017 and 2018 respectively. Under the Brexit scenario we expect prices of £533,700, £559,300 and £591,700 respectively.
- When we consider these price differences alongside the total number of dwellings in London, the cumulative difference (or hypothetical loss) in property value reaches £8.2 billion in 2016, £18.3 billion in 2017 and £26.5 billion in 2018.
- The impact of Brexit on the rental market would be minimal in the first 2-3 years following the referendum. However, country-wide rents could be impacted more severely in the long term. UK residents born in other EU countries are far more likely to be private renters. Therefore if fewer EU nationals move to the UK in the long term there may be a more noticeable impact on demand levels.
You can read the full report here
As this is the last newsletter before we know the results of the referendum on EU membership, we are running a poll here which we anticipate will produce some interesting results.
If I was a betting man, which I am not, I would say the vote will give a reasonable majority to remain. This is based on some advice I read from a respected source about watching betting odds, and these being more reliable than polls. The last UK election was a case in point.
Currently the odds have shortened on staying in, the last time I looked, 6 to one on for staying. That means a £60 bet would net you £70 – your original stake plus a £10 win. Not a great outcome as a bet. Alternatively, the odds for coming out are 3 to one against. That means a 60 bet would net you £240 – your £60 stake plus a £180m win, a much better proposition, but less likely to happen. I hope I got all that right as I don’t know about placing bets and about any tax involved, so the betting people here may correct the technical details, but the principle it correct I’m sure.
— LandlordZONE (@LandlordZONE) May 27, 2016