In view of the current political and economical uncertainty and as a preventative measure most of the large UK commercial property funds have reduced the value of their portfolios or have suspended redemptions. Some have done both. This is quite normal in these circumstances and is a measure to try and avoid liquidity problems otherwise fund managers would be forced sell properties to fund redemptions. That would lead to a fall in the value of some of their assets and would possibly have a contagion effect across the sector. Once market conditions normalize these restrictions will be lifted.
The main concern at the moment is the post Brexit passporting rights of UK based companies. There is much speculation at the moment as to what will happen with most companies having adopted a wait and see approach. They have also put new investment in the UK on hold. In the meantime, the government and the Bank of England are trying to stimulate economic growth. Announcements have been made in relation to a planned reduction in interest rates, the relaxation of banking rules allowing commercial banks to lend more, and a planned reduction in corporation tax to 15%. These measures will come in force in the coming weeks and months. The most notable result of these announcements has been a further drop in the pound which is currently trading at $1.30 against the dollar following the rates announcement. The FTSE-100 and FTSE-250 have recovered most if not all previous losses.
Whilst the number of property transactions has fallen, not much has changed in the prime central London residential property market as yet. Sellers in this part of London tend to be under less pressure to sell so as a result some properties have been withdrawn from the market. Those that need to sell are being more flexible in price negotiations, however we have not yet seen significant discounting. In the meantime, US$ (and to a lesser extent euro) based investors have started to take advantage of the weak pound and are selectively acquiring properties in key locations.
Our expectation is that this uncertainty will last a little longer probably till after a new prime minister takes office in September. His or her first task will most likely be to kick start negotiations with the EU and as those talks get underway the markets will stabilize and investors will react accordingly.
In our view anyone wanting to buy residential property in prime central London in order to take advantage of the pound and market weakness should act before the market re-stabilises. The usual question is timing. In these situations it is always difficult to get in at the bottom but waiting too long may mean missing out on this buying opportunity. During the 2008 global financial crisis the window of opportunity in prime central London was around 12 months from the beginning of the crisis. Realising that the long term prospects of this segment of the market remained unchanged, smart money moved fairly quickly and by early 2010 prices exceeded their 2007 peak.
