Amid much of the immediate uncertainty created by Britain’s vote to leave the EU, has there ever been a more opportune moment to invest in UK real estate?
Historic. Momentous. Significant.
It may have only swung on a narrow margin, but the UK’s vote to leave the European Union (EU) represented a landmark moment in British politics.
Speculators were quick to react to immediate uncertainty and made knee-jerk moves off the back of breaking headlines. Over the five days that followed the pound fell to its lowest level against the dollar for 31 years, and the FTSE 100 share index suffered huge losses before returning to its pre-referendum level by June 29th.
Naturally, significant economic moments such as these created immediate and short periods of uncertainty.
Nothing from a property perspective has changed
Supply and demand levels. A city’s tenant demographics. Value drivers that command rental premiums. None of the key fundamentals that underpin an investment in UK residential property rely on Britain’s membership of the EU.
A vote to leave has changed none of these key criteria.
What’s more, while the immediate period of economic uncertainty may have come as a surprise to the electorate, it didn’t for the country’s leading economists.
Mark Carney, Governor of the Bank of England, asserted that “we are well prepared for this”, while former chancellor George Osborne similarly declared “we are equipped for whatever happens”.
And amid all of the discussion and analysis, a vote for Brexit may well have just created one of British real estate’s most significant investment opportunities.
A currency window that will lead many to act now
The pound will address the immediate losses it has suffered in the months and years ahead once all uncertainty has been alleviated and the UK maps out its framework for leaving the EU.
In the here and now though, its value is at the lowest it’s been for three decades. By June 27th, one pound was worth just $1.322, compared to $1.5 the day of the referendum. If you’re an investor that deals in a dollar-pegged currency, UK real estate just got 12% more affordable.
But this window of opportunity will soon pass. With the FTSE 100 share index already returning to growth and the future economic prosperity the UK will work towards upon leaving the single market, the pound, renowned for its robustness and long-established as a hedge for weaker currencies, will regain its strength once again.
Additionally, the dollar arguably remains exposed to a continuation of the Chinese financial slowdown, and could be open to the prospect of losses upon the outcome of next year’s US presidential election.
Are we about to see a surge investors striking while the proverbial iron is hot?
The potential to capitalise on rising yields
During short periods of economic uncertainty, banks and building societies often look to impose lending restrictions.
Should uncertainty prevail over the coming months, many people could find it difficult to obtain a mortgage and move onto the property ladder.
This underlines the importance of private rented sector (PRS) investment more than ever.
Britain could experience a spike in the number of people needing rental accommodation due to a lack of lending. Coming at a time when already a number of cities across the country have huge imbalances in supply levels and demand for rental product, investors are likely to see a notable uplift in the monthly returns their assets generate.
An opportunity in line with the long-term mind-set of property investors
Real estate investment works best for those that plan for the future. The highest capital returns take years, not months, to be achieved.
While there remains an element of uncertainty over the next few months, and if buyer demand dries up due to a lack of mortgage availability, residential property values could become exposed.
This makes the focus on yields more important than ever before. It means your property can deliver a strong, monthly income throughout this period.
But once the strength of the pound returns and the UK’s GDP forecasts rise once more, so will property prices.
And it will be those that act now, and identify the immediate and long-term opportunity this vote for Brexit has created, that stand to gain the most in capital appreciation.