What’s in store for property markets post the EU referendum? - 16th June -

What’s in store for property markets post the EU referendum?

Escape to the Sun looks at the possible outcomes for select property markets ahead of the forthcoming EU referendum.

The outcome of the referendum is becoming increasingly finely poised. Whilst the result may be in the balance, the arguments for Exit or Remain have become increasingly heated, personal and subjective. Emotions are running high and are likely to run even higher as the 23rd June approaches. A small change in voter intentions either way can have profound implications for the result and obscure factors such as the weather on the day and the fortunes of the England football team can have an impact on voter turnout and intentions.

With these degrees of uncertainty and irrationality, financial markets around the world are experiencing significant levels of volatility. Negative bond yields, increases in gold prices and appreciation of major currencies such as the dollar and yen, it is clear that investors are running for the hills in search of safe havens. So, in this uncertain world, what predictions can we make for key property markets?

Our first prediction, contrary to Chicken Little and the UK Government, is that the sky won’t fall in on the 24th June as the result of the referendum is announced. Despite gloomy predictions by the Government and economic ‘experts’, irrespective of the result, the UK economy is well placed to succeed in the medium and long-term. The UK has maintained a triple-A rating due to its competitiveness, entrepreneurial outlook, flexible labour markets, an extremely well diversified and robust economy and is well positioned to be successful in next generation industries. The UK is an attractive place to live and to work.

Our second view is that, again irrespective of the referendum, the momentum of the UK housing market has now stalled and London, in particular, is looking overheated. Some of the underpins that have been the foundation of the strong growth over the last six years have been undermined. Cheap money, easy finance, the buy-to-let market and overseas investment from Russia, China and the Middle East have dried up. That is not to say there will be a major market re-adjustment as there is still a shortage of residential property. It is clear though, some of the drivers of past growth are just not as dominant as they were previously and momentum has been checked.

Given the absence of these drivers, our overall view for the UK property market in the short-term is muted. However, fundamentally, property as an asset-class has consistently delivered good long-term returns and again this view has not changed. The next six months are therefore likely to represent buying opportunities as the market softens.  

The UK and particularly London is still seen as a trophy destination for overseas investors and short-term softening of the market in combination with a fall in the value of Sterling, could, paradoxically, see some major in-flows of overseas investment into the UK property market. It is clear that overseas investors are waiting in the wings ready to pounce if short-term opportunities arise. At Escape to the Sun, we take the same view, investors should be ready to move quickly as opportunities may well be short-lived given our view that the UK and property markets have a favourable long-term outlook.

 We hold a similar position for the Euro and European property markets. Whilst the short-term outlook for Sterling may be negative in the event of Exit, the implications for the Euro could be even worse. Stripped of a major budget contributor and a G7 economy, the EU is no doubt in a weaker position without the UK. Indeed, the anti-EU feeling is not just isolated to the UK. Issues over austerity and the general economic performance of the EU are major concerns. In addition, the rise of far-right politics across Europe is only reflecting the UK’s unease over immigration, lack of democracy and control as well as the rise of a federal super-state. A UK exit is only likely to embolden other countries to follow suit and it is not difficult to see a black-cloud hanging over the Euro in the short-term.

As such, our view is that there will be Euro weakness in the case of Exit and again this should represent a buying opportunity for some European property markets. In the event of Remain, Sterling strength should also give another favourable position versus the Euro. Popular destinations such as Portugal, Spain and Greece already offer good value in relation to historic levels and this combined with a favourable exchange rate suggests a good buying opportunity. Again, investors looking at European property should be ready to move if short-term opportunities arise. We’d also be happy to talk to customers who want to lock in any favourable exchange rates.

The position of Sterling versus other currencies seems less favourable. The US Dollar looks strong and is likely to remain so. A possible area of uncertainty is the forthcoming US Presidential election which promises to generate as much noise as the UK referendum.

In summary, our view of the UK property market is muted and short-term weakness aligned with possible Sterling weakness could generate buying opportunities. In addition, irrespective of the referendum outcome, it is likely that popular markets in the EU will still remain attractive.

The above only represents Escape to the Sun’s opinion. It does not constitute investment advice. Escape to the Sun always recommends its customers to receive independent financial and legal advice in relation to major investments such as property.  

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