Now that markets are beginning to digest the somewhat unexpected news that Britain voted to leave the EU, we analyse the possible implications on the London property market.
Stock market indicators
Investors have spoken. Friday was characterised by capital flight to safety, a sharp fall in the pound and a drop in the major stock market indices. Shares of UK developers and builders such as Bovis Homes, Great Portland Estates and Berkeley Homes fell by around 20%. Not a good start but all quite predictable.
European bourses suffered larger losses with the Spanish and Italian indices each registering losses of 12% while the German and French indices fell by 6% to 7%. These losses are partly the result of an expected negative impact on exports on account of a stronger euro, but could also be predictive of future instability throughout Europe.
In the UK, after the initial 8% fall in the FTSE 100, the index closed 3.15% lower for the day which is about 2% higher than the opening level of the week. The market may have initially overreacted as strong demand built up in the afternoon, but it is still too early to tell as further market weakness is forecast for next week.
Uncertainty
The one certain thing, is that in the short term uncertainty will prevail as all parties will be positioning themselves ahead of crucial negotiations. Throughout this period we expect interest rates to remain low, the pound to remain weak and inflation to potentially climb as the costs of imported goods may go up. On the other hand British exports and UK property will become comparatively cheaper to foreign buyers.
Timing and opportunity
Much will boil down to timing – as negotiations get underway the UK will begin its journey towards stability which may well result in a normalisation of capital flows into the UK sooner than some analysts are predicting.
Although it is not easy to get the timing right, experienced investors and smart money will move quickly and ahead of the rest of the market, and are likely to benefit from their foresight. These investors recognise that the long term fundamentals and attractiveness of the property market in central London are unlikely to change any time soon.
