EG Finance and Asset Management Summit: The political risk from a Corbyn government far outweighs the short-term shock of the UK’s exit from the European Union.
Cain International chief executive Jonathan Goldstein said: “For me, a messy Brexit will be a short-term blow to the economy but London will find an equilibrium.
“A Corbyn government could change the social fabric of this country and its economics for generations.”
Speaking at the EG Finance and Asset Management Summit on the ways to avoid the current real estate cycle entering its later phases, Goldstein said political risk at the moment trumps all others.
He compared choosing between Brexit and a Corbyn government to deciding on whether to amputate a leg or an arm, but said “The fantasy economics coming from the Labour Party… are simply unsustainable and not based on any economic logic.
“The abhorrence of the capitalist system that comes out of the leadership… is a far greater threat to Britain than a messy Brexit.”
John Slade, executive chairman of Evans Randall Investors, said: “With regards to the cycles: if anyone is going to bring us to the end it’s definitely the politics rather than the macroeconomics.”
However, he said referendum uncertainty has given some overseas investors a window to make opportunistic deals.
“The foreign capital has been relishing the Brexit debate and its effect on pound sterling” he said, explaining that investors from Hong Kong see real estate and currency plays as “the same thing”.
“While sterling is so low and London is seen as stable, I think the overseas people will come in and they will buy these big stable transactions.”
No distress yet
Alongside the political risk, pricing in London, industrials and residential has reached peak levels but remains hard to predict.
Goldstein said anyone looking at the UK market in the short term needs to brave.
“Anybody trying to predict cycles ends up having egg on their face… It’s a very difficult question to answer without doing it sectorally,” he said.
But this has not yet translated into distressed sales.
According to Ali Imraan, national director, debt and special situations at LaSalle IM, while some markets have reached their peak, distressed opportunities in the UK were few and far between.
“I don’t think we are seeing that as a broad strategy,” he said.
“What we are seeing is in specific sectors where the cycle might have over-extended, or the market shifted.
“From a prime resi perspective which has had a very strong run… that hasn’t manifested into distressed sales and wholesale valuations, but it has definitely slowed down the pace of sales, so they are trying to buy more time or elongate that process.”
He said there were similar situations in the retail sector amidst a changing landscape of what does or doesn’t work.
“You are seeing those kind of opportunities arise but I don’t think you can say we have seen that as broad base yet, because people still don’t really know what is going to be the impact of the really big political decision ahead of us.”
Pressure in the debt markets to allocate cash has created fears of overheating but Imraan said the regulatory structures put in place after the 2007 financial crash have helped.
“2007-08 showed us the shortcomings of how we were structuring debt. A lot of structuring changes came about from 2008.
“What we are doing now is spending a lot more time underwriting deals and making sure we are retaining the structures we came up around control and understanding, so if something gets into trouble we are able to step in and be involve that process.”
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