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|LCP property market reaction to Brexit and the resignation of PM David Cameron|
|Friday, 24 June 2016|
"Prime Central London real estate is expected to benefit from a flight to quality and the security of blue-chip tangible assets, against a background of highly volatile financial markets."
“It is now likely that property prices in Prime Central London will increase. Whilst LCP had originally predicted that this would not occur until 2017, the signs are that the re-entry of investors into the market will be more rapid than originally expected. LCP have received a stream of enquiries from the early hours of this morning”
“In light of the anticipated appetite, particularly from foreign investors, LCP has decided to make a second share offering available for its quoted property company, London Central Apartments III, which exclusively invests in the private rented sector in Prime Central London” Naomi Heaton, CEO of London Central Portfolio
The impact of Brexit has been amplified the world over by the shock resignation of PM David Cameron, compounding the uncertainty caused by the departure of the UK from the EU.
The fallout for the UK property market, however, will, without doubt, be two speed. The domestic market is affected by local factors, in particular the economy and employment. Both of these may suffer from the reverberations of the vote announced today and the uncertainty surrounding the future of the governing Conservative party.
Whilst the political upheaval of the monumental changes that have come into play this morning is undoubtedly going to have a fundamental effect on financial markets, of which London plays such an important role, it is expected that Prime Central London (PCL) property itself will see a surge of activity. It is expected that PCL real estate will benefit from a flight to quality and the security of blue-chip tangible assets, against a background of highly volatile financial markets. Movement in gold prices, to which PCL is historically closely aligned, has already increased by 5%.
Prior to the referendum, sterling had already been driven to lows not seen since the Global Credit Squeeze, with USD denominated investors enjoying discounts of almost 1/5, cancelling out the recent unwelcome increases in UK property taxes. Today, as of now, sterling has dropped a further 10% and is predicted to drop significantly more in the short term.
According to UBS, The Bank of England will at the very least keep interest rates on hold, but a cut is very likely. Other forms of stimulus are also possible. Alongside domestic homeowners, this will benefit investors into the Central London property market. It should be recalled that the dramatic bounce back in PCL was supported by a weak sterling and falling interest rates during the credit crunch. Prices rallied within one year and outperformed almost all other financial indices.
Whilst markets are reeling in shock and assimilating the news, a short term downturn in financial markets is undoubtedly expected. However, it is also anticipated that they will recover over the two year Brexit negotiation process and London will continue to hold its position as a financial powerhouse.
It should be remembered that international investors have always been, and will continue to be, attracted by PCL’s reputation as an aspirational, cultural, and educational centre. They are reassured by its rule of law and unequivocal title to property when it comes to ownership. All factors unaffected by the UK vote to leave and which investors worldwide will continue to find attractive, even as the UK embarks on the path of being an independent power outside the European bloc.
It is also worth noting that the EU has played only a limited role in attracting international capital to the London property market, with only 12% of buyers coming from Europe according to LCP’s research. In the unlikely event of a wholesale withdrawal of European buyers, there will be very little net effect on the market.
Instead, it is predicted that there will be a surge of new buyers, who have been poised on the side-lines awaiting the results. LCP, as a real estate investment advisory, specialising in Prime Central London, has already received a stream of enquiries from Asian and Middle Eastern investors from the early hours of this morning.
This year, prices in Prime Central London softened in the face of a whole raft of global issues – falling oil prices, continued uncertainty in China and tax headwinds at the top end of the UK property market – and had already factored in the impact of an out vote. Price growth in Central London had tailed off from its 8.7% long term annual average to 4.7% whilst investors adopted a wait-and-see attitude. It is now likely that the market will harden and whilst LCP had originally predicted that this would not occur until 2017, the signs are that the re-entry of investors into the market will be more rapid than originally expected.
As LCP predicted in their recent analysis of the impact of an ‘out’ vote, international buyers are now likely to capitalise on a weak sterling and a competitively priced market.
In light of the anticipated appetite, particularly from foreign investors, LCP has decided to make a second share offering available for the quoted property investment company, London Central Apartments III, which it advises. This will enable investors to capitalise quickly on attractive foreign exchange rates and the predicted bounce back in the Prime Central London market. Alongside this, foreign investors into the fund, can benefit from significant tax reliefs as they are exempted from non-resident CGT and the forthcoming ‘look-through’ inheritance tax.
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