What is the effect of Brexit on UK’s real estate prices?
Even a couple of months ago, there was a pale of gloom across the UK property markets that claimed that the commercial real estate of UK was considerably valued less than the time that it was part of the European Union. According to the CBRE, the US based company having a major property portfolio in the UK, the values of the stocks of their company fell by 3.3% in July, just one month after the Brexit. Other companies like the MSCI and Aberdeen asset management also felt the same as their shares fell by 2.8% and 12% respectively.
Pound falling by 11% is bad news, what is the good news then?
The worst nightmare after the Brexit was the steep falling of the British currency, the Pound by 11% against the American Dollar. This was an additional pain that the investors of huge property portfolios in the UK were experiencing. But the fall of the pound may have been a blessing in disguise for people who were in the wings waiting for the right time to invest in the UK property market. Initially, even though the skepticism prevailed over investing in the UK when it has exited the European Union, there was a certain kind of faith that got re imposed when a large number of individual foreign investors took the opportunity gladly to invest in the UK market with the pound having crashed. The property was attractive to be bought at cheaper rates and given the history of the UK it was a given that it would rise from its ashes just like the proverbial phoenix.
It is difficult to exactly quantify the damage:
A lot of companies have found out that it is difficult to exactly quantify the aftershock of the Brexit on their shares and stocks. So, they simply deducted a flat of 5 % from the value of their stocks before the Brexit period to determine the losses that they would eventually make. The loss figures may be hypothetical and exaggerated but it is important to take aftershock into consideration to avoid a skewed balance sheet at the end of the financial year.
Huge difference between numbers from the previous years:
Britain has seen very few property enquiries in this year. Initially there was a rush for its property because of the proposed new regulation and increase in the stamp valuation of its property registration. A lot of investors who were sitting on the deal for a long period of say six months to one year hurried their deal in order to avoid unnecessary heavy expenditure of increased stamp duties at the time of effecting of transfer and registration of the property itself.Still, this year has only seen 3 billion US dollars deals coming through as compared to last year when the property market was booming with deals worth 10 billion US dollars coming through.
The reason for the slump may be sentimental too:
Because of the general hopelessness that the people have, the property market may be experiencing a slump. It has been seen that in turmoil periods like these and also during war like situations, the emotions and the sentiments of the people affects to increase the slump in the market. The solution may be to appraise the property or to offer heavy discounts on the prices help people. This can create a ripple effect or a much desired dominos effect where people see other people warming up to the idea of investing in the real estate property and they also get inspired to so the same.
Fund managers under heavy pressure:
Assets and funds manager are under heavy pressure to meet their deadlines to dell their existing property portfolio. If only they are in time with the selling of the existing property they can get back their investment. Right now, they are not looking at making any extra ordinary profits at all. All they want right now is to get back the returns on their investments. No wonder , a lot of property in the last four months have been sold at heavy discounts. The Brexit has had a sure adverse effect on the real estate market of the UK because a lot of investors who had committed to invest in real estate started pulling out money in wake of the Brexit. Share prices of asset management firms dropped steeply and deals were barely made!
The doomsday prediction may come true:
Financial experts and people in the know how had always predicted that property market will be the first to be affected in case the referendum was in favour of Britain’s exit from the EU. But somehow the Valuer firms in the UK, who of British property are an optimistic lot who say that the effect of lull in the markets is not directly because of the Brexit but because of the people’s anticipation of any adverse reaction to the Brexit fallout. There is a huge silver lining in the black cloud and it proves that the property market is extremely resilient and it will overcome this challenge smiling as well.