UK real estate plunges, but questions still linger

By: Damian Wood
Damian Wood
As an experienced trader, I work for myself managing my own small portfolio and also contributing on several investment news sites.… read more.
on Dec 16, 2019
Updated: Mar 11, 2020
  • Despite a short-term gain in the property market last Friday, fundamental questions remain regarding the future of the market beyond next year.
  • Rob Wilkinson of CEO of AEW said that unless a Brexit deal is reached by the end of Jan 2020, the impact of last week’s election may not last as long.
  • Uncertainty in the UK property market has slowed down real estate activities for the better part of the year.

The UK property market is expecting a short-term improvement in sentiment following last week’s massive win by the Conservancy party, enabling Prime Minister Boris Johnson to retain his seat in a tightly-contested election. However, fund managers are still concerned about the fate of the property market beyond next year.

CEO of AEW, Rob Wilkinson expressed his concerns saying: “A Tory majority is the most positive or benign outcome for business and the real estate market. But I don’t think this is going to lead to any sudden euphoria or an investment spree into the UK. Critical uncertainties will remain, particularly around whether they can get Brexit done by 31 January and a deal struck by the end of next year.”

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“The resounding Conservative win removes the short-term risk of a no-deal Brexit and the fog of political uncertainty – although the medium-term risk of the UK crashing out of the EU remains,” James Thornton, CEO of Mayfair Capital shared Wilkinson’s sentiments.

Thornton further added that he expects to see increased public spending to fund additional infrastructure, one of his firm’s core investment themes.

Thornton said he expects “higher GDP growth and continued high employment.

“All of these factors will support occupier demand and improve real estate investment liquidity. We do not believe that higher sterling will deter foreign investors who have been more concerned by the political uncertainty. Ultimately property returns are correlated with economic growth. The removal of one risk factor should enable confidence to return leading to stronger growth.”

A UBS-AM Real Estate and Private Markets property analyst Zachary Gauge said: “The comprehensive majority won by the Conservatives should finally give the UK real estate market some clarity.

“Investment activity in 2019 has been held back by the ongoing uncertainty, but we would expect to see some of the foreign capital which had been understandably waiting on the sidelines to start to target the UK again in the first half of 2020.

“This may provide a short-term bounce, particularly in central London, which appears attractively priced compared to other European markets. But the clock will start ticking very quickly towards end-2020 when the transition period comes to an end and based on the experience of the previous three and a half years. It’s very difficult to see how all the details of the future trading arrangements can be tied up within 11 months.

“So it may not be long until uncertainty returns to dampen the market. Economic growth is also expected to be subdued as businesses will still lack the clarity which is required to make long-term investment decisions in the UK until all those finer details are tied up.”

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