Investors are sounding the alarm over a potential Brexit next month, concerned that leaving the EU will dampen appetite for London property.
No country has ever left the 28-member-state European Union (EU) trade block, so there is no precedent for how such a move would affect the UK economy. But international investment from Asia, Russia and the Middle East has long propped up London’s luxury market. Would a vote to leave the EU in the 23 June referendum prove a thorn in its side?
Fear and speculation are driving market instability, says Knight Frank’s Harvey Cyzer. “Rising… uncertainty due to the unknown implications of the upcoming EU vote is the key issue.” He adds: “Experience from the 2014 Scottish referendum shows we ought to expect a slowdown in housing market activity as we get closer to the poll date.”
Camilla Dell at buying agent Black Brick, suggests that the EU referendum has created a division in the market for property in London. While some buyers would rather put their search on hold, there are those who are using weak Sterling and political uncertainty as an opportunity. “They want to buy, and buy now, and actually see the uncertainty surrounding the referendum as a good opportunity to get a better deal on their London property.”
After the vote, Dell predicts two hypothetical outcomes, both positive: “Should we vote to leave, this will create ongoing uncertainty as the UK seeks to agree a way forwards with the EU. Sterling may weaken even further, making London property very attractive to foreign buyers.” She adds: “Should we vote to remain, normality will return to the market straight away and we may see a pick-up in transaction volumes as a result of pent-up demand from buyers that were waiting in the wings.”
Patricia Farley of Farleys, a Kensington and Chelsea-based agent, told Billionaire that, as well as speculation and uncertainty, “increased stamp duty is also responsible for affecting high-end London property”. Hiked taxes and levies on second-home ownership in the capital, implemented by Chancellor George Osborne, have disincentivised the rich from investing in the housing market. Farley dismisses any suggestion that this might affect international demand for London property in the long term: “People have to get used to the taxation. Of course, that affects the market, but it has to go through the system.”
She adds: “I think it will be a 10-15 percent effect on the international demand for property. If we come out of the EU, we may have a couple of years of hard times. If we stay in the EU, we may still have a year of hard times. After which, the market will bounce back and there will be a return to prosperity.”
Property search agent Nicholas Jaffray of Palmstar, a central London buying agent, believes that the international appeal of London means that there will be little fall-out from European buyers should a Brexit take place. “European buyers make up a very small percentage of central London property transactions, so on the worldwide stage this is a small concern.” Dell adds: “We are seeing growing interest from oil-dependent countries, such as Saudi Arabia, to invest in assets outside of their own country; Saudi clients now make up at least 30 percent of our business.” While many of Farleys’ international clients derive from the Middle East, China and Russia, she highlights that Greeks and Turks have been among her buyers.
All agree on one thing: the ultimate appeal of London. As Dell says: “London is going to retain its attractiveness to wealthy international buyers, regardless of whether the UK remains in the EU. Its cultural attractions, geographic location, legal system and concentration of talent mean that there will always be demand for prime central London property.”