Although it involved just a small portion of the world’s population directly, the tremors of the vote were felt throughout the world in one way or another. For any number of reasons, it was a momentous decision for the British people and Europe as a whole. And the impact, as diverse as it was, had quite a few industries reeling in shock and uncertainty.
The greatest shock however, was felt in several key industries and businesses within the United Kingdom itself, in the shape of rocky circumstances in the property sector.
The property business in any country is decidedly delicate, no matter how stable the economy. In fact, it can be argued that property and estate is one of the most, if not the most variable of all businesses. And this variation was seen very clearly and felt quite prominently throughout the UK, after the decision was taken to leave the European Union in favour of an independent state.
Property Business in the UK, Pre-Brexit
For a number of years before the Brexit, the state of the property business within the UK was viewed with a wary eye by investors everywhere, be they foreign or domestic. This was mainly attributed, among other things, to the usually high prices that properties in the UK routinely commanded. This was observed even more clearly in recent years when UK properties saw an unprecedented and quite surprising rise in value.
While it was a known fact that properties within cities such as London and Oxford had been expensive and continued to be expensive, it was the climb in prices of properties in other cities as well, that really drove the situation home.
With the surge in properties prices making headway in the business, it came as no surprise that foreign interest, especially in the property market was dim, to say the least.
The same was true, to some extent, for domestic investors and property developers. Only the elite could be seen as being able to survive in the property market in pre-Brexit UK.
And then came the news of the impending vote, which not only ruffled some feathers within the general property market in the UK but reignited interest in UK properties overseas. Investors in China, Europe and even some developers and financial giants within the US began to look at the property market of the UK with increased interest.
The UK Luxury Property Market
One part of the UK property market that was always a point of desire for foreign investors was the luxury property sector. This included both residential as well as some commercial properties, both of which commanded prices that the majority of investors were known to balk at initially.
According to one prediction, this was the sector that would retain its value and keep the prices as they were, throughout the financial upheaval, no matter how significant it may be. To some extent, the prediction could be seen as holding true to its word as the UK luxury property was one sector that enjoyed a consistent demand, especially in light of the recent flurry of development that it was experiencing.
This was true especially for the London and Southern England markets. One look at recent photos of the Central London skyline peppered with cranes and construction equipment, and the point became clear. Prime properties in Central London were on the rise, both literally and figuratively, and despite the impending warnings of a drop in Sterling value, they promised a consistency, if not a rise in prices.
For some, this was good news. The developers behind the UK luxury property boom were looking at consistent and stable profits even after separation from the EU. Morale was high and although individual buyers started to have second thoughts, they succeeded in keeping the latter roped in for the time being.
But for some luxury property developers, this vote appeared to be a harbinger of hard times ahead. UK luxury properties, especially ones in prime locations throughout the country, started to be seen as prime targets of the tumultuous event and the value downfall that would occur as a result of it.
The Brexit Scenario
As soon as news of the vote broke out, a shockwave of uncertainty rippled through the property market in the UK. The prediction that had already been made with regard to the various sectors of the market, started to fall apart in many cases.
Some optimistic viewpoints saw the market sustaining itself despite the vote and yet other, more realistic ones saw a crash of sorts, the worst in several years.
There is some amount of truth in both viewpoints, however different the thought behind each may be. The former remained true at some level, as some areas in the UK saw the property prices remain the same, more or less. However, the more pessimistic viewpoint could be seen taking hold in reality as well, as prices plunged by 5 to 15 percent in some areas. The majority of these hard hit properties were residential in nature although some commercial properties suffered from this downfall as well.
Some of the worst hit areas at present are Knightsbridge which experienced a drop in prices of 7.5 percent, while the neighbouring area of Chelsea and South Kensington saw a price drop of 3.5 percent and 4.6 percent respectively.
Buyers postponing decisions, Prospective buyers backing out
Another significant ongoing event that the market foresaw but to a lesser extent, was the eventual backing out of UK luxury properties’ buyers. This unsurprising, but not wholly expected phenomenon was what caused the price crash in some areas. Buyers and housebuilders, who were looking to purchase property in the UK, saw the doubtful situation and began withdrawing from purchases.
Similarly, housebuilders who already had transactions in process started to pause the exchange, as a result of widespread paranoia and hesitation within the luxury properties developer community. The bulk of these withdrawals took place in the areas that housed some of the highest valued properties in the country; neighbourhoods such as the aforementioned Knightsbridge and most of London’s comparatively affluent section.
The Royal Institute of Chartered Surveyors issued a report on the investment flow from domestic sources, in the UK property market. The report showed that the fear of and apprehension towards an unknown financial future, was what caused local investors, luxury property developers as well as independent property developers to back out of investment opportunities.
Increased demand of high value properties in the UK
One aspect of this sudden upheaval is the sudden increase in demand of high value properties in the UK, from sources other than the local independent property developers. While domestic interest in the properties gradually waned, some investors and property developers abroad began to see the emptying slots as investment opportunities to be availed while the market was still in an unstable state.
Foreign Property Developers’ Interest in UK Luxury Properties
This was a development that was observed by a large number of estate agents, agencies and property dealers within the UK. As soon as the vote emerged to the forefront in all its glory, and local investors and buyers began to back out, a surge in popularity among foreign property developers came about.
This sudden change of interest sources, from local to foreign can be called a result of the fall of the pound sterling in value. A direct outcome of the Brexit vote, this movement saw foreign interest in UK luxury properties rise to an all-time high in the immediate aftermath of the vote. Estate agents all over London and southern England reported receiving calls from foreign investors and property buyers from the Middle East and all over Europe. Some local property dealers even reported having received calls a mere 48 hours from when the referendum decision came out.
Reasons for foreign interest in UK luxury properties
There are several reasons why post-Brexit Britain saw as many overseas buyers of UK property as it did. Some, like the natural confusion of local buyers and their scepticism regarding the property market, were expected. However, the magnitude of the impact and the response it generated from overseas buyers of UK property, could not have been foreseen.
Following are the main reasons for the sudden climb in appeal of UK property for offshore buyers.
- Rapid withdrawal of local and domestic buyer attention: As local property developers in the UK began to pull out of ongoing transactions and investment opportunities, there were a large number of ready-made potential gold mines in the UK property market. As mentioned earlier, overseas investors had historically shown an interest towards UK properties specifically, when thinking about investing in a European country. And this time, there was a ripe opportunity to be had.
- Pound sterling’s fall in value: According to some reports, the Sterling’s value post Brexit fell lower than it had in 30 years. This caused opposing reactions among locals and foreign developers. The former pulled their funds out of the UK market while the latter rushed to invest as much as they could. As the dust is still a long way from settling and there are talks of another referendum in the making, the state of the Sterling can neither be determined nor predicted for certain.
- Continued development despite the local disinterest: Another reason for foreign interest in British properties is the continued development on new projects despite the Brexit scenario. Property developers in the UK have persisted with the development process even though the majority of local UK buyers have displayed a loss of faith in the property business at the moment. It is not certain whether this is for the benefit of foreign buyers or out of a hope for the revival of local investment. What can be said with confidence however is that although the market has decidedly slowed, development still continues, even in the current state of the economy.
Future of the UK Property Market in the Aftermath of the Brexit
The deciding vote has undoubtedly left many industries in a confused state and there are many indicators to suggest that this situation will persist for an uncertain amount of time. As several businesses and even the socio-political structure continue to reel from the shock, there have been different opinions regarding the future of the UK property market after Brexit.
It was already well understood that a decision of such magnitude was highly unlikely to go by with ease. There was bound to be some fallout as Great Britain decided to leave the European Union. However, nobody could have predicted the mixed circumstances that are being faced by the people and the business sector. It is largely being predicted that in the coming months, the situation is going to ease towards some form of stability, as luxury property developers in London persist in their efforts to keep the UK property market alive and well.
At least for now, the UK property market is still working towards gaining a solid footing and in the weeks and months to come, there are chances of the situation stabilising for the better.
Guide for New Buyers
For those interested in investing in UK property, there are a number a ways to approach the market. By far the best is through an online estate agency such as iMoveEstates. Both luxury property developers in London and overseas can benefit from this opportunity. Through precise evaluation of area-specific changes in price, iMoveEstates provides the most accurate analysis on individual residential and commercial properties, at the lowest service charges, and with a best pricing guarantee.