The aftershocks of Britain’s decision to leave the European Union have hit the property sector over the past week, with a foreign bank freezing loans for buyers and some investors pulling out of commercial deals.
Some foreigners, however, are already making the most of the drop in the pound post-Brexit to snap up what they see as residential bargains.
London property has long been a magnet for foreign investors, be it extravagant homes or iconic commercial real estate, and prices in the capital have sky-rocketed.
Key to overseas investors will be whether the fall in the value of sterling is attractive enough to offset the political vacuum, expected economic slowdown and questions over market access that have resulted from Britain’s vote to leave the EU.
Singapore’s United Overseas Bank temporarily halted mortgage loans for London properties. Other Asian banks also flagged potential investment risks.
For British investors, the uncertainty may be prohibitive, even though property is widely considered more profitable than other safe assets, given supply shortages.
“A number of deals I know have gone down or certainly been delayed,” Paul Firth, head of real estate at law firm Irwin Mitchell LLP said. “Everyone is taking a pause at the moment just to wait until a new normal is established.”
In one case, the purchase of a regional shopping centre by a U.S. private equity fund worth more than 30 million pounds was delayed after Brexit for at least a couple of months pending the market settling down.
Another deal his firm was working on involved a French vendor of high-end luxury goods who put on hold its new flagship London store after Britain’s decision to leave the EU, he said.
He said a number of their “significant investment deals”, worth above 30 million pounds each, had stalled. The deals involved mainly UK investors but also some foreigners. One deal the firm was working on worth more than 40 million pounds had gone through since Brexit.
Britain’s June 23 vote to leave the EU has already caused the government to collapse and deeply divided the country.
Bank of England Governor Mark Carney said on Thursday the economy would probably need more stimulus over the summer given that the outlook had deteriorated. He also said commercial real estate transactions had halved since last year’s peak and that activity in residential real estate had slowed sharply.
British commercial real estate investment volumes reached 10.7 billion pounds in the first three months of 2016, a 28 percent fall versus the same period a year ago and its lowest quarter since the second quarter of 2013, according to June research from real estate services firm Cushman & Wakefield.
SOURCE: Reuters
