With five months to go until Britain leaves the European Union, jitters are spreading across the property market, writes Mario Berti, chief executive of Octopus Property.
One leading residential developer told me that the weekend after Bank of England governor Mark Carney warned the cabinet that house prices could fall by up to 35% in the wake of a no-deal Brexit was, in terms of sales, one of the worst this decade.
“Why would anyone buy when they think their new home could collapse in value next spring?” he told me. “Why not wait until April or May to buy a bargain after we crash out of the EU?”
In the commercial property arena, consumer confidence is hitting the performance of retailers and dragging down shop property values as a result; central London office leasing decisions are being delayed and even the shining stars of the logistics world are fretting about restrictions on trade.
Having committed more than £3bn to the sector over almost a decade, the team at Octopus Property wanted to give our customers the opportunity to explore the implications of Brexit, so we thrashed this out through a “London versus the regions in the Brexit era” debate last month.
Key themes
Several key themes emerged, as experts including Mat Oakley, Savills’ head of Commercial research and developers Nick Sellman of Birmingham-based Urban Village, Duncan Crook of Newbury-based Ressance and finance broker Rob Jupp from Brightstar, among many others, gave their views.
Firstly, there was a weary resignation that Brexit will happen, that a “people’s vote” is unlikely and that the development and investment world now needs to roll up their sleeves and make the best of whatever deal the UK negotiates.
Next there were widespread concerns that developers would be hampered by restrictions on labour once Britain leaves the EU, with one attendee revealing that the day after the 23 June 2016 referendum, eastern European workers did not turn up for work on one of his sites. They thought that they had already become excluded from working in the UK.
And thirdly, there was a view that transactional activity will slow in the next five months as much of the property market adopts a wait-and-see approach.
But what also emerged was a view that Brexit is arguably a sideshow to some bigger issues affecting the property market right now.
Continuing increases to residential Stamp Duty Land Tax – the latest mooted by prime minister Theresa May at the Conservative Party conference – is the biggest issue affecting the top end of the London market.
Although the next six months will see borrowers becoming more discerning, the second half of 2019 could see a Brexit relief bounce
The biggest takeaway of all was that property was now increasingly seen as late cycle, although there was still support for investment in urban logistics development, regional office refurbishment and retail property once values begin to fall steeply.
Our view at Octopus Property is that there continues to be a huge opportunity in the UK real estate sector, and that although the next six months will see borrowers becoming more discerning, the second half of 2019 could see a Brexit relief bounce. Whatever the details of the Brexit deal, Britain will remain a great place to do business and will continue to be attractive to foreign investors.
Chancellor Philip Hammond calls this a deal dividend, and there is some credence to the view that if Britain secures a Soft Brexit, the property sector’s appetite for finance for development and investment will increase sharply once again.
What is also clear is that in the post-Brexit era, the people who will be satisfying that increased appetite for finance will not be property’s traditional lending institutions.
Beset by problems with their legacy branch networks, stifled by bureaucracy imposed in the wake of the global financial crisis, suffering from tarnished brands and struggling to attract new talent, these behemoths struggle to satisfy customers who value certainty of funding and service above all else.
Prepare for a big revolution in the property lending world in the post-Brexit era. The 2020s will belong to the disruptors.
