Leave win will cause Brexit bubble in London property market
The vote to leave in yesterday’s EU referendum will generate a short term ‘brexit bubble’ and then a ‘two-speed’ London property, according to Peter Wetherell, Chief Executive of Wetherall.
“Now that voters decided that the UK is to leave the EU we are seeing massive shock and turmoil across all markets,” says Wetherell. “The political establishment who wanted to remain are in Shock; Boris Johnson and Nigel Farage have shown that they have the support of the majority of English people and the City and financial markets will have to adjust to a “new normal.
“David Cameron will need to think about his future, and this gives both Boris Johnson and Nigel Farage an opportunity to say they have their finger on the pulse of what the English are thinking.
“This descision to leave has opened up a Pandora’s Box as far as the London property market is concerned. This (Friday) morning already Sterling has plummeted to a low not seen since 1985 and this will now create a short-term buying opportunity for US dollar and Euro based property investors. For overseas buyers, this big and dramatic drop in the value of Sterling will effectively offset the Stamp Duty and tax adjustments and it will make Prime London property a lucrative investment for overseas investors bold enough to take a punt despite the market uncertainty.
“This is a market for risk takers and people able to spot high risk, but potentially lucrative opportunities that have emerged overnight due to the fluxes in the markets. Dollar based Middle East and Asian investors in particular will now wake up this morning and look at short-term buying opportunities in the Central London property market and look at acquiring residential property priced up to GBP6 million. Already this morning I’ve had so many enquiries from clients about the implications for the London property market and I expect my phone to be extremely active today from my clients from both the UK and overseas about whats happened.
“The Prime Minister, Chancellor and Governor of the Bank of England will now need to act boldly and decisively to stop this exit from the EU from potentially leading to a ‘two-speed’ London property market. Now that UK will not be part of the EU in the future then industry construction costs could rise by up to 15 per cent since currently construction materials imported from and exported to the EU are free of duty and taxes. Many site/construction staff working in London are people who originate from countries across the EU the future of all of this will need to be looked at quickly and decisively.
“London’s status as the financial capital of Europe could be under threat due to Brexit. Currently London is able to provide financial services to the EU; the future of all of this could now be put into question as the UK leaves the EU. Currently some 39 per cent of London’s population of 8.66 million people were not born in the UK. For Mayfair and the West End, some 55 per cent of the market is based on non-EU overseas buyers who are from the Middle East, India, Russia and Africa. The West End is far less reliant on the EU, so it will continue, maybe at a lower volume or maybe at a higher volume; dependent on volatility in local political markets around the world.
“However in West London and Inner North London where there are high levels of EU buyers there could now be a dramatic slowdown which could last for a number of years. The more commercial property dominated markets of the City of London and Canary Wharf/Docklands could be really damaged by this exit from the EU, with a flight of capital, companies, jobs and workers.
“These issues in West and East London might be a short term problem or a long term issue; dependent on the strength of the financial markets in the City of London to continue and cement the City as the financial centre of the world.
“The end result of this decision to exit the EU could be a two-speed London property market – with just the core West End, and the periphery (homes priced below GBP400,000) continuing to operate; but with stagnation across the West, North and East London sectors of the market.
“In order to protect the long term interests of the London property market the Prime Minister and Chancellor will urgently need to review StampDutyLT adjustments and also seriously consider reversals of the various tax changes that have already challenged the central london market over the last few years.
“Since the vote is out and with tumoil this morning in the international markets a far weaker pound it would hardly be fair of the Chancellor not to make a level playing field for the local London market – he will need to act boldy to make adjustments to penal transactional charges – after all greater volume of sales at a lower tax rate makes the government more money.
“Now that Brexit is the new reality if the PM, chancellor and government do not intervene to support the property sector then we will see the nightmare scenario of a two speed market.
“I think of the success of London over the last 8 years – after the banking crash of 2008 Central London developers sought out overseas investment to plug the development finance hole when the banks withdrew debt – shows just how robust and agile the London property market is when faced with major challenges. After the last global recession overseas investors and London’s developers worked together and should be applauded for finding the resources to continue developments and the success of London. So since its been done once before, I have every confidence that the London property market is strong, robust and able to rise to challenges.”