Brexit and the Property Market: What Impact Has It Had?

Weeks following the original Brexit deadline of 29 March 2019, and over a thousand days since the EU referendum vote in 2016, questions marks continue to hang above the terms of the UK’s withdrawal from the European Union.

Here Jamie Johnson, CEO and Co-founder at FJP Investment, discusses with Finance Monthly the real impact of Brexit on the UK property market.

While it may seem like the country has ground to a standstill as the political standoff in Westminster continues, we cannot let this overshadow the activity and trends underpinning many of the UK’s leading sectors.

The property sector is a case in point – domestic and foreign investment continues to pour into the market, increasing house prices grow and in turn producing attractive investment opportunities. Recent research suggests that property investors also stand undeterred despite Brexit uncertainty –almost half (45%) of property investors have expanded their property portfolio since the EU referendum, whereas only 7% said they had sold one or more homes as a direct result of Brexit.

To understand why the UK continues to be a prime property hotspot despite the current state of political affairs, it can be valuable to reflect on how the sector has fared over the last two and a half years. This including understanding the key trends that have played a central role in shaping the real estate market.

Strong regional growth

In times of uncertainty or transitions, commentators like to take a keen interest into how different sectors are performing in London. As a cosmopolitan hub renowned for its residential and commercial real estate opportunities, the capital has faced some challenges. Since the EU referendum, house prices have largely stagnated, and in some postcodes even fallen.

However, focusing on primarily on London risks overlooking the progress taking place in regional markets. Indeed, national house prices have actually been on an upwards trajectory in recent months, driven largely by strong growth in places like the Midlands and North of England.

Birmingham (up 16%), Manchester and Leicester (both up 15%) have experienced the fastest rates of house price growth since the June 2016 referendum, followed by Nottingham (14%), Leeds (12%), Liverpool and Sheffield (both 11%). In real terms, this means that the average property in Birmingham now stands at £163,400, while the average house in Manchester costs around £168,000. For an investor, this attractive capital growth few assets can match.

So, what are the underlying reasons for these strong performances? Much of it comes down to large-scale regeneration projects which are reviving infrastructure, construction and transport links. Some of the construction works include the redevelopment of land close to new stations that are being created for High Speed 2 (HS2).

Property as an attractive asset class

Significant public and private investment is undoubtedly bolstering the sector, yet another important trend to note is the volume of property transactions taking place even at the height of Brexit uncertainty.

In January of this year – just weeks from the original Brexit deadline, and without a clear vision of what the UK’s transition from the EU would entail in practical terms – the number of transactions on residential properties with a value of £40,000 or greater was 101,170, or 1.3% more than a year prior.

This is testament to the underlying popularity of property as an asset class able to deliver long-term returns, and weather political and economic transitions. In fact, recent research revealed that Brexit hasn’t dampened investor sentiments towards property; the survey of over 500 property investors revealed that 39% plan to increase the size of their property portfolio in 2019, regardless of the ongoing negotiations.

Challenges facing the market

Notwithstanding the obvious challenges facing the UK – namely, setting out a clear direction for the future of the country outside of the EU – there are some pressing national priorities that also deserve attention.

Perhaps most important of all is the housing crisis. At present, there are simply not enough affordable and accessible houses on the market to meet growing demand. And while the government has set targets to address this issue, there is an overwhelming fear that these goals will ultimately fail to materialise.

Last year, Prime Minster Theresa May committed the government to delivering 300,000 new homes a year by the mid-2020s. Although a positive step in the right direction, the current pace of progress suggests that construction efforts will fall short of reaching this target.

Figures released by the housing ministry in March 2019 showed that building work began on 40,580 homes in England during the final quarter of 2018. This is down 8% on the previous three months. Further to this, a National Audit Office report recently concluded that half of councils are expected to miss house building targets.

While Brexit has largely taken priority over important issues, the Government cannot put off committing the necessary time and resources towards rebalancing housing supply and demand. Creative reforms are needed, and debt investment projects, such as off-plan property investments, are but one of the many solutions that could promote the construction of new-build properties.

Despite the current obstacles facing the property market, UK real estate has proven itself to be a resilient asset class even in times of hardship. Bricks and mortar remains a popular destination for domestic and international investment, and looking beyond the more immediate challenges lying on the horizon, it is important to recognise the resilience of property as a leading and desirable asset class.

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