Moving on from Brexit to a Housing Bubble

Prices in anticipation

It is human nature to react to the unexpected. Brexit has made Britain’s property owners focus on the economic repercussions if the unexpected should become a reality. The sum of ‘what if’s’ of the affectations of Brexit along with the Pound spiralling to its biggest decline in thirty years resulted in a overall percent decline in Britain’s property market. Moreover as correctly predicted by Savills and Frank Knight it is the high end London and south-east England properties that bore the brunt of the effect of the referendum.

The 11 percent fall in the pound sterling provides a great opportunity for foreign investors to buy into London homes and avail the discount in dollars. The rating agency Moody’s has found that about 49 percent of the high end London homes priced at over a million pounds is owned by foreigners whose reaction to the referendum will have a significant effect on the market price. According to Savills Mayfair properties have steadily grown on the average by 61 percent from 2012 prices while in rest of London prices grew by only 28 percent.

The majority of these foreign nationals are non EU buyers who live in London for no other reason except Central London and Mayfair being favourite destinations and the most stable investment in property. The factors that have made this sector stable in the wake of recessions and current political instability are a continued belief in London property being a safe haven. Buyers consider factors like a fair legal system, balanced taxation, private schools and the economic and political stability unlike financial restrictions in China and Russia, severe long term economic and political instability in Brazil and the tanking oil prices in Saudi Arabia.

Out of the overseas buyers about a third of London homes are EU members with a large section being European Bankers who have set up offices in London and may have to leave faced by Brexit.

European Banks located in London may move their office out and back to Europe post Brexit, lowering the demand for both commercial rentals in the city as well as housing by its employees. As a result rents are expected to fall by over 18 percent in the next two years if the estimated 100,000 job are relocated out of London as per Jeffries the US Investment Bank.

However, the demands from domestic and international buyers remain unabated with nineteen thousand new homes under construction in London underling the true reality beneath appearances.

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