Over the past few years of global recession, the health of the UK property market has been watched closely by analysts, estate agents and investors alike. To the surprise of some, it has remained largely buoyant through various financial storms, and has out-performed most other forms of investment over the past five years.
Despite this, it might be over-optimistic to hope that the further downturn that most are expecting in the wake of Brexit will have no effect on the property market.
London and the Home Counties have seen consistent growth, but even Essex estate agents acknowledge that there will be some effect on property, both in terms of demand and price.
The immediate financial effects of the Referendum were clear for all to see. The pound slumped to an all-time low and some government gilts briefly were briefly offering negative returns.
A short-term dip in the property market took place immediately after the vote, causing property funds to batten down the hatches in anticipation of a storm that never arrived, as the market quickly recovered and continued its steady positive trajectory.
Going forward, however, there is still a great deal of uncertainty as to how the economy will perform and the knock on effect that it might have on property.
The recent High Court ruling that the government cannot trigger Article 50 without the support of parliament has added an additional unknown factor into the mix. Key economic indicators spiked in the wake of the decision, and despite government assurances that Article 50 will still be triggered next March, many commentators predict a general election before any firm action takes place.
There is consensus that if and when Brexit does take place, the effect on the economy will be a negative one. The Treasury has already reduced its 2017 growth forecasts from 2.1% to 0.9% as a direct result of the Referendum results.
Effect on the property market
With so many unanswered questions, it is impossible to predict the effect on the property market with any degree of certainty. Logic tell us that it is less subject to some financial measures than other areas – for example, those that are directly affected by oil prices will clearly be more severely influenced by the strength of the pound.
However, experience tells us that all assets can feel the effects. Interest rates are already low and will remain so, and many investors are likely to take a “wait and see” approach on property portfolios, leading to a general slow-down in transactions.
Having said this, property is and will remain a desirable asset. Even if growth capital is weak, it remains more secure than most other investments. A diversified property portfolio continues to be the best form of investment in uncertain times, with bricks and mortar considered by many to be better than money in the bank.
By weathering the uncertainties of the coming year or two, investors can have realistic expectations of significant returns come 2019.
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