Dubai: When it comes to trying to win a vote, real estate can have its uses.
Or so the UK Chancellor George Osborne believes, going by his statement last month that Britain’s home prices could crash by as much as 18 per cent if the Brexit referendum delivers a “Yes” on leaving the European Union. Whether such dire warnings — and others just as alarming on how Britain will have to cope without an EU role — do influence votes to stick with the “No” will have to wait until June 23.
But the swirl of uncertainty certainly seems to have put off some overseas investors, especially those from the Middle East, into holding off on their commitments in UK realty. “The uncertainty around Brexit has certainly had some effect ... on the commercial market in particular, with some investors putting decisions on hold until the vote,” said Jon Neale, Head of Research — UK at the consultancy JLL. “But it is probably more marginal in residential.
(Royal Wharf) the Dh7.8 billion Mariner’s Quarter, a project from London-based developer Ballymore and Oxley.
“The owner-occupier market continues to be strong — if there is a dampening factor here it is affordability, rather than the threat of Brexit, although it clearly adds to the uncertainty.”
It does echo the sentiment of Hamish Pound, Senior Investment Manager at IP Global, to an extent. “We have felt the London residential real estate market consolidate this year after what was a very strong 2015. Brexit certainly is a factor,” said Pound.
“However, the slowdown has actually created a buying opportunity. Once the vote is passed and uncertainty in the market is removed, demand will return and with constrained supply, that can only push prices higher.” (Pound, clearly, reckons that the vote will deliver a vote for the UK to remain within the EU framework. But recent opinion polls suggest that those wishing to leave are inching ahead, and making the actual vote too close to call.)
The Battersea Power Station Development, the first apartment created to showcase homes designed by the architectural firm Gehry Partners.
Safest bet in realty
It was never meant to be like this. Overseas investor interest in London realty was expected to remain just as upbeat as it had been in the last four years. Ticket-sizes were getting bigger by the year and the impression was that overseas buyers were snapping up anything that came to the market however exorbitant the asking price was. It was even felt at the start of the year that the run up to the referendum to remain or leave the EU will only be a temporary blip in the pace of buying.
All through the first quarter and in April, a slew of UK developers were pitching the virtues of their projects to potential investors in the Gulf. London as the safest bet in realty was the principal note struck in any negotiation.
“Many Mena [Middle East and North Africa] investors are second- or third-generation and still see the value in London real estate — the fundamentals remain strong and the economy is seeing a steady recovery,” said Rob Tincknell, CEO of the Battersea Power Station development, in a recent interview. (The first residents are expected to move in at the end of this year.)
“A recent Knight Frank London report forecasts cumulative growth of 22 per cent on London residential prices between 2015-19 as demand continues to exceed supply,” said Tincknell. “On numerous occasions I am regaled with stories from investors talking about properties their fathers bought in London 30 years ago for 200,000 pounds which are now worth 2 million pounds.
“It remains a hospitable investment environment for Middle Eastern buyers, with 24 per cent of the $11.5 billion they spent on overseas property in 2015 being in London. And there is a strong willingness for Middle East banks to provide mortgages through their branches in London. While stamp duty has risen in recent years, this has not deterred investment from this region due to the market’s continuing appeal as a safe haven.”
Whatever be the outcome on June 23, as far as overseas realty investors are concerned, the safe haven status is the only thing that matters.
Factbox: Chasing yields in UK realty
* For those who are not swayed by a London address and much prefer higher yields, UK’s regional cities are where the action is. “Yields are increasingly important in uncertain times and, coupled with a flight to affordability, we expect demand to continue to flood to areas such as Ilford, Croydon, Manchester, Liverpool and Birmingham,” said Hamish Pound at IP Global. “There is definitely still value growth in central and prime central London but not to the extent we are seeing in zones 3+ and the regional cities.”
