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June 2016

Britain goes to the polls on June 23 to decide on whether or not to withdraw from the European Union. Cityscape investigates how the so-called ‘Brexit’ would affect the property market.

Whether or not the United Kingdom should remain in the European Union has been a contentious issue for a number of years. Now, on June 23, the country will go to the polls to vote on whether to stay or leave.

It will be the first public vote on the UK’s EU membership since 1975, when the country voted to remain part of the European Economic Community (EEC), the precursor to the EU.

The EU is an economic and political partnership of 28 European countries. Today, it offers a single market that allows goods and people to move freely among its borders. The Euro currency is used by 19 member countries – but not the UK.

Sentiment across the country is divided – the Prime Minister, David Cameron, and Jeremy Corbyn, leader of the opposition, believe Britain is ‘Stronger In’, while outgoing London Mayor Boris Johnson is leading the ‘vote leave’ campaign.

Financially, predictions are also contrasting. The International Monetary Fund (IMF) has said that a vote to leave the EU would disrupt mutual trade and financial flows, while credit ratings agency Moody’s has said that the financial impact of a ‘Brexit’ would actually be small.

A recent Savills report, ‘The EU referendum – Implications for commercial, rural and residential property markets’, published in March 2016, weighs up the speculation on the UK property market and aims to shed some light on potential outcomes for commercial, rural and residential markets.

Generally, the report states that in the medium-term the implications will be relatively unimportant. However, in the short-term, the Savills report points to an economic uncertainty that could impact on transaction volumes across all three sectors.

“A vote to stay in the EU would result in restored demand, though the extent of a ‘relief rush’ would vary from sector to sector. In the event of a vote to leave, such uncertainty would be extended to the period during which the UK renegotiates its relationship with the EU and other major trading partners,” stated the Savills report.

“The biggest direct risk is the potential long-term reduction in subsidies in the agricultural sector. In the commercial markets we do not feel that there is a substantial risk of companies relocating from London in significant numbers. While short-term risks in the residential sector are greatest in those markets where international buyers are most active, we believe the impact on the wider UK market remains largely dependent on domestic factors.”

The current situation

This is brand new territory. No other country has ever left the EU, so there is no historical data with which to predict a possible outcome for either a ‘stay’ or ‘leave’ vote. Because of this, it seems that many property investors are playing a waiting game, the allure of potential currency gains proving a big incentive for many holding off on rolling the dice.

The UK market has seen a steady rise in property prices over the past seven years, since the recession for 2009. However, demand has relaxed and price increases have eased off. This has led to vendors of high-end luxury properties in London dropping prices. Transaction rates have also dipped recently, although this has partly been driven by the diminished benefits of corporate holding structures and changes to the Stamp Duty Land Tax.

“At the moment, in the run up to the referendum, we are seeing two types of clients; some clients are very aware of a potential Brexit and the uncertainty that surrounds the referendum and, therefore, want to put their search on hold until the result is known. We have other clients who couldn’t care less. They want to buy, and buy now, and actually see the uncertainty surrounding the referendum as a good opportunity to get a better deal on their London property. The uncertainty is also having an effect on sterling, making London property cheaper for foreign buyers,” said Camilla Dell, Managing Partner at independent property buying agency, Black Brick.

Yulia Kozhevnikova, a real estate expert at Tranio, an international overseas property broker, also agrees that, generally, business has slowed, but she does also point out that property prices in the UK do continue to rise.

“Prices went up 4.2% year-on-year in Q4 2015 in the UK and 11.4% in [London]. The best-performing regions are typically London and South East of England. General activity has slowed compared to last year, due to uncertainty, but sales volumes in the best-performing regions are rising, and it’s highly unlikely that the market would totally freeze if the UK made a Brexit,” she said.

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