EU REFERENDUM – WHAT DOES IT MEAN FOR THE PROPERTY SECTOR?

Aristotle was the first to theorise ‘Cause & Effect’ with every cause there being an
equal and opposite reaction. This theory has been dramatically demonstrated with the
U.K voting to leave the EU with a 52-48% split.

The Reaction to the vote has been severe with the pound dropping to a thirty-year low
against the dollar, ten’s of billions being wiped of the stock exchange and both the
financial and manufacturing sector looking to move jobs abroad.

European Commission President Jean-Claude Juncker has made it very clear “out is
out and there is no re-negotiating”, a stark message to the U.K especially to the voters
who have stated their regret over their vote to exit the E.U now they have seen the
reaction. It is a costly and painful reminder to the voting public of the country they
have the responsibility and obligation to find out the truth and consequences prior to
them voting.

But what does this mean for the property sector? Alongside the financial services the
property sector took a massive hit with stocks in the largest developers in the country
dropping by over 20%, with Taylor Wimpey taking the biggest drop of 28.28%.

This is not surprising, with the value of the pound dropping the value of property could
well drop too. Jan Crosby, head of housing at KPMG, stated “it is likely there will be a
price drop in the order of 5% in regional UK, possibly slightly more in London” While
London property prices have dramatically recovered from the crash of 2008 the rest of
the country has taken longer and this vote could set this recovery back in the Capital
and Regional areas.

Cities like Manchester and Cardiff are being invested in heavily by developers but the
vote could well hinder progress in these cities with developers re-focusing their
strategies on where to invest. It is also not just the financial reaction which could slow
progress, but the potential loss of the workforce.

According to the Federation of Master Builders 12% of the construction workers
employed in this sector are from the EU. The UK has two years to leave the EU after
which these workers may no longer be allowed to work in the country. If developers
have not found replacements this will create a slowdown in the construction of new
sites.

Then there is the London market, one which is unique to the rest of the country. There
are a number of foreign investors who invest in the London property market for both
investments and second homes. The London market has always been seen as a stable
and profitable market, one which has attracted not just wealthy foreign investors but
also foreign developers.

Developers such as the Malaysian Government currently redeveloping Battersea
Power Station and the Wanda Group, a Chinese development company with their first,
and maybe last, foray into the U.K market with a development on Nine Elms Lane.

These investments bring new homes, jobs and money to a much needed sector and
country.

Foreign investors are now going to be wary of investing after seeing the drop in the
pound and will take a lot of convincing given the lack of confidence and uncertainty in
the British economy. This view has been compounded by Moody’s Credit Agency
changing the outlook of the economy to “negative”. The agency has already cut the
rating from “AAA” to “Aa1” which they say is at risk of being lowered again.

The caution of foreign buyers could potentially damage a lot of London based
developers, the extent of which will not be fully realised until the half or year-end
results are published.

With the uncertainty in the economy and jobs market buyers will also be waiting to see
what happens before they buy and owners will be reluctant to put their homes on the
market which creates a situation of no supply and no demand resulting in a dip in
property prices.

It looks set to be another turbulent year for the property sector which will test the
resolve of the sector and economy.

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