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.”

A leading London buying agency is warning that some areas of prime central London could face a downturn following the Brexit vote – but that the world’s “global elite” won’t be affected by the UK leaving the EU.

Camilla Dell, managing director of the Black Brick agency, says investors drawn to homes selling in the sub-£2m price bracket will continue, because of those properties’ favourable yields and domestic demand.

But she warns “the same can’t be said for the prime and new-build outer prime markets.”

Dell says sales of homes priced between £2m to £5m and then £12m to £15m are in many parts of prime London dominated by investment bankers and hedge fund managers.

“We do not expect the wholesale flight of financial services firms away from London, but it is likely that they will lose their ‘passporting’ rights, or their ability to sell financial services across the EU, if the UK does leave, triggering the departure of some financial services capacity to Dublin or the continent” she warns.

“Even relatively low numbers of bankers leaving areas such as South Kensington or Notting Hill – where European bankers, in particular, tend to be concentrated – could have a significant effect on local markets over the next couple of years.”

The agency also expects what Dell calls “the new-build outer prime market” to suffer most from continuing uncertainty, having already experienced a lull before the referendum vote.

“Trying to pick an off-plan development which is likely to appreciate upon completion, is extremely difficult and a high-risk strategy for investors. The main reason is that, often, new builds command a significant premium compared with surrounding existing property prices, so you are buying in the hope that the development will significantly outperform local property prices. You can increase your chances by buying into a low density (fewer than 100 units) development where, if the development proves popular, there is a demand vs. supply imbalance which would lead to an increase in prices. The development also has to tick many other boxes such as location, proximity to transport links, and shops.

Questions to ask 
1. How many units are there?
2. What is the break up between one, two, and three bedroom units?
3. Which direction does your unit face? South facing is always going to be the best in terms of light.
4. Are there other developments planned in the area? This will hugely affect the investment potential – if there are thousands of units planned in the immediate area it could significantly reduce the investment potential.
5. Will your view be affected by future development?
6. Are you able to assign your contract? This is crucial if you plan to sell the property before completion as some developers prevent this in the sales contract meaning you have to wait until all units are sold before you can sell yours.
7. What is the anticipated service charge? Again, this is key as a high service charge will eat into your rental yield if you plan to let the property.
8. What are the staged payment plans?
9. How many units have already sold and what is the buyer profile?
10. What other schemes has the developer built? If possible, it’s a good idea to go and visit a previous development to get an idea of the quality you can expect from the developer.”

“In the run up to the referendum, we are seeing two types of clients. Some clients are very aware of a potential Brexit and the uncertainty that surrounds the referendum. They therefore want to put their search on hold until the result is known. We have other clients who couldn’t care less. 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. The uncertainty is also having an effect on sterling, making London property cheaper for foreign buyers.

“Should we vote to leave, then this will create ongoing uncertainty as the UK seeks to agree a way forwards with the EU. Sterling may weaken even further, again, making London property very attractive to foreign buyers.

“Should we vote to stay in, normality will return to the market straight away and we may see a pickup in transaction volumes as a result of pent up demand from buyers that were waiting in the wings.

“In general terms, 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.” – Camilla Dell