Why Brexit Could Be a Blessing for Foreign Real Estate Investors

27/06/2016 15:52

The razor-thin margin of success for the Leave camp will now dictate the future of the United Kingdom, possibly the rest of the European Union. Things are certainly going to change both domestically and overseas. While investors have been pretty apprehensive about how and where to spend their cash before the referendum, many are now seeking solace in the UK property market.

Over the past few months property buyers have been unwilling to make long-term real estate purchases without a clearer idea of the financial implications. In fact, investments in the commercial real estate sector dropped by almost half in the months leading up to the referendum, purely for fear that businesses would move abroad and leave higher vacancy rates.

But for every cloud there's a silver lining. Smaller businesses and foreign investors who have been waiting on the sidelines for years, unable to buy commercial properties, finally have a chance to make a move. The pound has plunged to a 31-year low, and real estate is soon to follow, providing an attractive rationale for those looking to jump onto the UK property ladder.

Bloomberg has recently reported that London office prices are tipped to fall by up to 20 percent within three years. But it's not just the capital that will be affected; house prices around the rest of the UK could fall by five percent within the year. While the Brexit camp continue to stick to their guns, arguing that the business world will adapt to the ever-changing economy due to selective economic partners and immigration policies, changes will likely take years. As many buyers remain on the fence about making large financial decisions, interest and volumes from overseas is already increasing.

The aftermath of the Brexit referendum has caused Asian investors to take major interest in UK investments, as the dip in sterling means they could recoup as much as 20-25 percent on the currency alone. The affect of the weak pound has already prompted a major increase in inquiries from Chinese international property portal, which is currently receiving 30 percent more queries from eager buyers than it did last month. London houses are also in particularly high demand.

Who Will Benefit?

Foreign buyers will take advantage of depreciating sterling and use the short-term window of opportunity to invest in property. According to Thomas O'Connell, who heads the commercial real estate division for JDP Limited, "The savings will offset the high cost of Stamp Duty and make for a very lucrative long-term investment." In time, if other members of the European Union follow suit, this could also encourage previous investors and businesses that abandoned the UK to reconsider their position when/if the economy starts to strengthen. This essentially could allow new investors to get in quick, and reap the rewards years later.

Who Will Lose Out?

Property owners in the UK (especially London) who are looking to sell, despite the weak currency, will suffer. The fall in property prices will not benefit domestic buyers, and if Brexit causes significant job losses and slows down the economy, there could be troubles ahead.

Ironically, many of the people who used their vote in hope of deterring outsiders may have sparked a major influx of foreigners looking to capitalise on the investment advantages that Britain now has to offer. Fundamentally, anyone who is currently not dealing in sterling will have a huge opportunity. London is and will remain to be a leading financial power throughout the world, even after Britain formally leaves the EU. The volatility of the property market is going to be temporary; therefore, now is the time to invest. While it's a risk - when is real estate not? - the future gains could be extremely rewarding.