Could Brexit Actually Boost Foreign Investment in UK Property?

Most of the forecasts for a post-Brexit UK economy, including the property market, are not exactly positive. In particular, it is expected that the UK will become a less attractive place for foreign companies and individuals to invest or do business now the UK has chosen to leave the European Union behind. However, some experts are expecting that one specific area – foreign property investment – may actually get a significant boost from the vote to leave.

The experts predicting this are not, for the most part, disagreeing with the overall, mainstream forecasts for a post-Brexit economy, and on the face of it a surge in foreign property investment against this backdrop seems surprising. However, the prediction hinges on one specific side-effect of the shock that leaving the EU is expected to create for the UK’s economy; a rapid and marked drop in the value of the pound against other major currencies.

For foreign property buyers, this effectively provides a discount on UK assets over and above any slippage in true property values. Investors who primarily use other currencies will find that favourable conversion rates allow them to get more pounds for the same amount of money, and buy more expensive sterling-valued properties for the same outlay. Experts from major firms such as JLL are predicting that this attraction will outweigh the problems and uncertainties of an immediately post-Brexit UK for many foreign buyers, and encourage them to pick up properties while exchange rates remain favourable. As such, there could be a rush on both residential and commercial properties in the immediate aftermath of the leave vote, as investors “pile into” UK markets before the value of the pound has time to climb again.

Such a rush in buying activity would be in stark contrast to the current situation. The run-up to the UK EU referendum and the high degree of uncertainty that surrounds it has led to a general sentiment of cautiousness among investors whether domestic or international, and as such buying activity has been restrained. The first quarter of the year saw a 31% decrease in transaction volumes compared to the same period of 2015, despite many residential investors rushing to push transactions through in the first quarter before the 3% stamp duty surcharge came into effect into the UK in April. In London, this drop in activity was more modest than the UK-wide figure, but the capital still experienced a year-on-year drop of 11% in Q1 property transactions.

A number of experts, including 80% of members of the Royal Institute of Chartered Surveyors according to a recent report, believe that uncertainty about the referendum has been a key factor holding back activity. However, some also point out that the current cautiousness of investors is in turn leading to a situation where there is a lot of restrained buying that stands to be released when investors see a better opportunity, as may be the case if a Brexit leads to favourable exchange rates for foreign buyers.

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