The British Property Federation (BPF) has set up an ‘EU referendum’ section on its website to provide its members with a source of factual analysis on the potential impact on UK real estate following the outcome of the referendum on 23 June 2016.
This includes a paper setting out some of the considerations on the five potential areas of impact for real estate - uncertainty, trade and investment, free movement of people, financial markets and policy matters - together with the likely scenarios for the UK as a whole.
If the outcome of the referendum is a vote to leave the EU, there are three realistic options (assuming that, despite leaving the EU, the UK will wish to retain strong trade links with the EU market). These include:
- Bilateral item-by-item membership: Switzerland currently enjoys this relationship with the European Union, choosing to follow the rules for some policy sectors and not others. However, it does not enjoy membership of the Single Market and it took nine years for Switzerland to negotiate its current position. Though Switzerland has negotiated a trade deal direct with China (by way of comparison with access to the Single Market), it is partial in scope and China has negotiated transition arrangements of 15 years before it will remove tariffs on some Swiss goods, whereas tariff removal on Swiss goods must proceed immediately.
- Membership of the European Free Trade Association (EFTA) and European Economic Area (EEA): Norway enjoys this relationship with the European Union single market but it has no voice in negotiations on European Directives and Regulations (it must simply transpose, apply and enforce legislation) and contribute to the EU budget all the same.
- EU Customs Union Membership: Turkey currently enjoys this relationship with the European Union. Turkey has to permit access to its market to any country with access to EU markets, but does not automatically enjoy the right of reciprocity. Turkey also has no influence over EU rules and trade deals, and is a silent partner (as in the case of Norway above). The UK services sector would not be covered by such a deal.
Summarising the issues discussed in the paper, Chris Taylor, BPF President, said: “The outcome of the EU debate has been represented as a binary choice, but ultimately the vote on June 23rd represents only the beginning of a process in the event of a vote to leave, or the continuation of an ongoing process of evolution of the EU in the event of a vote to remain."
“It is clear that uncertainty is currently impacting markets adversely, but the long term implications of the decision in June are much harder to foresee and the diversity of the real estate industry means that individual BPF members may have very different perspectives.”
Peter McElligott, head of the Penningtons Manches real estate practice, said: “There has been much debate on the impact of leaving the EU on UK legislation as the UK’s environmental law derives largely from the EU and health and safety legislation, consumer regulation and data protection could all be affected. However, as the BPF points out, it is also important to consider the less direct impacts of a Brexit. Will a vote to leave exacerbate the skills gap currently being experienced in the construction industry? What about the impact on occupier demand, house prices and alternative investment sectors?
“As the BPF says: 'Other emerging alternative investment sectors that could be negatively affected include student housing, and the healthcare and hotel sectors, given the importance of free movement of students and employees respectively within the EU to their ability to thrive. The current rate of immigration is also implicit in house pricing today since constrained supply combined with high immigration can result in house price rises'. Without doubt, there will be other indirect implications of a vote to leave meaning that it is impossible to predict with certainty, after over 40 years in the EU, what life might be like on the outside.”