So, the 43-year long uneasy marriage between the UK and Europe is very surprisingly, ending in divorce.
We have already seen the verdict of the markets - the huge volatility in sterling and the FTSE. And with plenty of political and economic uncertainty stretching into the weeks and months ahead, a quick rebound for stocks is not on the cards.
Markets prefer stability and there is nothing certain about the future, for either Great Britain or the partners we are going to be leaving behind. While we can expect plenty of volatility, and possibly even upside in the medium-term, it is likely to be some time before currency fluctuations and equity markets calm down.
What does this mean for property?
During periods of uncertainty, investors tend to prefer assets that provide a reliable income, combined with low volatility to preserve their wealth.
Despite the oil shocks of the Seventies, the recessions of the early Eighties and Nineties, the bursting Dotcom bubble and the Global Financial Crisis, residential property has proved to be the best performing and lowest risk of all the major asset classes. In fact, between 1973 and today, the UK residential market has seen no five-year period with negative total returns, after accounting for both rental income and capital gains.
During even the Global Financial Crisis for example, UK property prices strongly outperformed the FTSE All-Share Index. Unlike other asset classes, far fewer people are willing to sell residential property in uncertain times, which in turn further reduces supply and eventually provides upward pressure.
What about interest rates? With UK households heavily burdened by debt, any increase in rates would put further pressure on the economy. Economists at JP Morgan have forecast borrowing costs could fall to zero by August. Speaking at a Property Partner event, Chief Investment Officer at Coutts Bank, Alan Higgins, echoed Mark Carney's comments that "rates will be low for long."
Prime Central London
Let's now consider the impact of Brexit on what is known as 'Prime' Central London - areas such as Mayfair, Knightsbridge and Belgravia. Say what you like about them, but foreign buyers are the engine of this market and will likely wait for the smoke to clear to see if the warnings about Brexit turn out to be true.
So, it is likely that the immediate future will see Prime Central London transaction volumes remaining low, with flat or falling prices. During the Global Financial Crisis, Land Registry figures show that transactions in Prime Central London dropped 70%, while prices fell 14% as investors mostly preferred to hold onto their assets and await economic clarity.
But as the recession continued and sterling devalued, the London market gradually picked up, then boomed as foreign investors bought up property in prime central postcodes at relatively cheap prices given the currency movement. By 2010 prices had returned to their pre-crisis levels.
At Property Partner, we have avoided the Prime Central London market, despite demand from our investor base. Our strategy has instead been to target areas offering genuine upside for investors in terms of both income and capital return. When buying in London, we have sought out areas like Woolwich or West Drayton, set for long-term outperformance, often driven by regeneration schemes or infrastructure investment like Crossrail.
The surge in capital values in areas like Mayfair has compressed yields to such an extent that properties in this market simply do not to comply with our investment criteria. But London is going to remain a leading global city where people want to live, Brexit or no Brexit. Overseas investors over the longer term are attracted by the security of our legal system, the safety, stability and cultural strengths of our society.
The fundamentals still apply
In the long-term, being in or out of Europe simply does not reverse the fundamental driver of the mainstream housing market in which we operate, namely that there are too many people chasing too few homes.
Supply is constrained by things like planning rules, lack of public investment, skills shortages, even the availability of raw materials. Demand is further boosted by domestic population growth and the low cost of borrowing. This simple disconnect between supply and demand has driven prices and will continue to provide upward pressure over the medium to long-term.
Major transport infrastructure and regeneration projects such as Crossrail and town/city upgrade investments will continue to positively influence prices and outperformance in adjacent areas. Likewise in London, projects like the Thameslink upgrade and Overground extension will continue, improving connectivity and transforming neighbourhoods.
So, while "Leave" has won the day, we believe that for the UK housing market in general and Property Partner in particular, the watchword is "Remain". It is going to seem like a helter-skelter for all markets for the next few months, but the medium and long-term prospects for UK residential property remain strong. In the end, people need somewhere to live.
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