Brexit deal could unlock pent-up investment capital

Brexit deal could unlock pent-up investment capital

Despite the gloom and uncertainty of 2020, two pieces of news have provided hope for 2021.
The distribution of Covid vaccines and, now, a Brexit deal are likely to provoke a huge sigh of relief among property investors. In the case of the latter, MPs have just voted the necessary legislation through the House of Commons, kicking the possibility of a No Deal Brexit firmly and finally into touch.
No-one knew for sure the effects a No Deal scenario would have had on property prices but it’s safe to assume that the market risks are slimmer now that an agreement has been reached between the UK and the EU. However you feel about Brexit, this will provide at least a grain of certainty that could lubricate the engine of property investing as the “wait and see” mentality dissipates.
The symbolism alone – of two economic heavyweights working together over the coming years – should mitigate the dampening effect on commercial and residential property development and transactions that has been a result of 11 months of uncertainty since we officially left the Union.
So, as we go into 2021 armed with the hope these unfolding events offer, here are some reasons why we think property investors can be optimistic about 2021.
Residential
UK property has long been viewed as an asset that is resilient in the face of market uncertainty. This stands to reason when you consider that we are a small island with a fast-growing population and a need for more housing that is not going away any time soon.
Indeed, this demand is borne out by research. A recent survey by international law firm DLA Piper asked 500 high-net-worth investors, developers and asset managers based in Europe, the US and China, which European countries they’re making plans to buy property in over the next 12 months.
Almost three quarters said they intend to invest in residential property in Europe in 2021 with 29% planning on investing more than they did in 2020. The UK came out on top as the most in-demand destination, with 33% of all those surveyed saying they would invest in the UK in the next year.
Of course, the US and China elements of this survey remind us of another reason why our property market might be partially insulated from Brexit – EU buyers represent only a small proportion of investors in UK real estate. In London, according to Hamptons International’s 2019 International Buyer and Seller Survey, EU citizens purchased just 15% of homes in Greater London in H1 of that year.
Meanwhile, house prices continue to surge, climbing 7.6% in the year to November 2020, according to the Halifax House Price Index. Many analysts expect growth to continue as the sales agreed during the summer boom complete through the winter.
But let’s not be blind to the potential difficulties ahead. In April 2021, the market looks set to be grappling with the twin ills of the furlough scheme coming to a close, potentially causing unemployment to spike, and the end of the Government’s stamp duty holiday. These factors, as some analysts are noting, could cause downward pressure on house prices.
Our view, however, is that investors don’t need to obsess over the potential for short-term falls in the market. Whether you are buying physical property, crowdfunding, investing through a fund or achieving other exposure to property in some other way, you are often hoping to benefit from a yield linked to rental income, whose regularity will be unaffected by short-term rises and falls in value. Additionally, investors who are prepared to wait out dips in the market will know that prices have always rebounded over the long term.
Commercial
Again, the Brexit deal – and the settled relationship it brings with the EU – should end five years of debate, division and uncertainty. Many analysts believe this will free up an abundance of capital looking for a return, which will help to support a recovery in commercial property investment.
The CBRE’s UK Real Estate Market Outlook has predicted an increase in commercial real estate investment from £37bn in 2020 to £48bn in 2021, a rise of 30%. The Covid vaccine is also a huge potential plus – as the various versions are rolled out, obstacles like travel bans and social distancing restrictions should fade, allowing investors to view more opportunities.
There are big themes that will continue to drive investment, regardless of Brexit. One example is the shift to internet shopping. While putting a question mark over the future of retail, this trend is driving growth in the industrial warehouses sector. This is likely to cause a growth in rental yields. A surge in demand for London office space is also expected once certainty returns to the market. Colliers, the professional services and investment management firm, predicts this will be driven by appetite for high quality products with upgraded digital infrastructure, good transport links and amenities. Finally, interest rates look likely to remain at or close to record lows, making borrowing almost as cheap as it has ever been.
All in all, the Brexit deal is a big positive for Brickowner investors. It installs much-needed certainty in the economy and could open the floodgates to a spending spree from businesses who are currently delaying investment decisions and consumers who have been unsure about buying and investing.
This article contains Brickowner’s opinions, based on the information that is available. Always seek the advice of a qualified independent financial adviser if you need advice. All investors should be aware that their capital will be at risk. The value of investments can go down as well as up. Forecasts are not a reliable indicator of future performance. Brickowner investments are not covered by the Financial Services Compensation Scheme. There is no recognised market to sell Brickowner investments. Brickowner investments are illiquid.