The Market

The impact of Brexit on London property

24th of June 2016 will remain an important in the history books for the U.K.'s exit from the European Union.

The historic vote resulted in a rapid dropping of the pound that subsequently resulted in most people flocking to purchase pounds at lower prices in Dubai. The last time such rates were recorded was in 1985. Major currency exchanges reported three times the usual demand for pounds and reported shortages, according to UAE news daily, Gulf News. We interviewed Jason Hayes, our Head of New Developments on why now is the right time for investing in London property.

Q. What does this mean for international investors who seek to purchase luxury property in London?

J.H.: The pound tumbling and remaining at a 30-year low makes the exchange rate very favourable for foreign buyers. Those from further afield are looking to dive in head first and take advantage of the current indecision in the market due to a weaker pound.

The sterling is expected to bottom out this year to as low as $1.13. As reported to Financial Times, Simon Derrick, Head of BNY Mellon’s markets strategy team says, "The peak to trough decline in sterling against the dollar was 29% in 1992-93 and 34% in 2007-08. Similar declines would today drive sterling down to $1.22 and $1.1350."

Faisal Durrani, Head of Research at Cluttons commented that: "Any US dollar or UAE dirham investors will find the price of an average prime Central London residential asset USD 96,000 (AED 350,000) less than it was on June 20. Conversely of course, the same property is now USD 96,000 cheaper for international buyers looking to enter the market."

This might just be the right time to buy for GCC Investors. Amit Seth, the Middle East and North Africa head of international residential developments at the London-focused estate agency Chestertons told The National that investors from the UAE accounted for more than 20% of buy-to-let property sales in the U.K. in 2015.

Q. What do you expect will happen in terms of the demand for ultra-high luxury property in London?

J.H.: Taking an analytical view of the figures makes for interesting reading; almost 40% of London’s population is people who were not born in the UK. Non-EU buyers own 55% of London’s prime property market from the Middle East, India, Russia and Africa.

Buyers whether they are owner-occupiers or professional investors need to always remember the adage that over the long-term property is the still best performing investment asset class around.

Q. According to Cluttons, a London residential asset will be 31% cheaper than it was during the last market peak in Q3 2007. Your comments?

J.H.: In London's ever changing political and economic climate, it's difficult to make an accurate call. However, for ultra high-end residential properties greater than GBP 10 million (above USD 10 million or above AED 47 million)with all things considered and pricing in Sterling's forecasted exchange rates, we believe property prices will remain stable. The key factor is two-fold- Firstly, demand for luxury real estate in London outstrips the supply and secondly, the Sterling's exchange rate is dropping.

The fundamentals of London have not changed. It remains the number one international city in the world, a hub of culture and a safe haven for money invested into real estate from HNWI’s (High Net Worth Individuals) around the world. It must be remembered that Europe accounts for only 7% of the World's countries, leaving 93% of the worlds countries outside of the European Union. The U.K.’s exit from Europe is not going to in any way amend the existing visa and visiting rules or prohibit or indeed hinder members of those 93% of countries from visiting, living and indeed buying real estate in London and the U.K.

Q. There seems to be a lot of political uncertainty. What do you expect will happen next?

J.H.: In terms of property investment in the U.K., the Brexit decision impacts those HNWI’s from within the European Union as they may in the future have to apply for a visa to enter and live in the the U.K. , whereas at this time there is un-restricted access. In light of this shock Brexit decision and out of character political uncertainty, investors from around the world should genuinely see the sharp fall in Sterling as a buying opportunity for London and the wider U.K.

The U.K.’s decision to leave the EU is generating significant debate on the impact to those living in the U.K. and Europe, and to the wider global economy. We are entering a new era for Britain. The work to establish fresh terms of trade with our European and global partners will be complex and time consuming.

But, the news is not all bad. Overseas property buyers will soon be snapping up London property after the shock decision for the U.K. to leave the EU, even if domestic buyers, spooked by uncertainty, pull out.