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London realty could be another to take a hit

UK developers undecided about marketing off-plan launches now to Gulf investors

Dubai: The pound need not be the sole victim – at least in the short term - from the Brexit vote. London’s property market too can come in for some heavy volatility as it adjusts to life without the European Union.

A weakening pound – it only remains to be seen how low it will fill in this immediate spiral – also creates opportunities for buyers.

If the volatility scenario pans out, there could be “bargain” possibilities for Middle East investors intent on taking positions in UK realty. This will be more so for off-plan developments that were to be marketed to Middle East investors once the June 23 referendum was over. Of course, the developers behind them had been hoping for a vote that would have confirmed UK’s position within the EU… and not an exit.

“We haven’t, as of now, made any changes to our plans to start marketing our latest project in the UAE next week,” said a senior marketing manager with a UK developer. “But given the uncertainty that’s been cast on the markets and sentiments, we could decide to postpone it. We will know over this weekend.”

Other developers too were hesitant about committing to their near-term plans until all the votes are counted and reappraisals done internally.

Industry sources, however, insist that London’s historic status as a safe haven for the global investor will still remain intact. More so, with Gulf investors.

“With a pound in relative free fall, it will make the acquiring costs a compelling bargain for investors from dollar-denominated or dollar-pegged jurisdictions,” said a London-based broker. “With the current off-plan launches, their developers need not drop the prices – it will still be a bargain for dollar buyers.”
In the first-half of the year, buying activity in UK property, especially London, had been subdued compared with the last four years. But more than Brexit fears, the imposition of higher taxes on costly properties acquired by overseas investors was the reason behind the dip in interest.

In terms of assets, residential transactions were affected more than the big ticket commercial deals, including those backed by foreign buyers.

But, now, with Brexit a reality, “It’s unlikely there will be a positive impact via money flows into UK real estate,” said Sameer Lakhani, Managing Director of Global Capital Partners. “There could be a few bargain hunters trying to capitalize on short-term trades.

“But there are longer term structural issues that led to the weakening of the UK economy.

“Financialization” – the trend of incremental debt issuance into an asset class – over the last decade has now caused the markets to soften. It will remain so as long as there is no coordinated fiscal response to counter this trend.”

 


 

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