There is very little European Law which directly affects the ownership or the mechanics of ownership of Real Estate in England and Wales. The decision of the UK to leave the EU will have no obvious impact the system of land registration, legal title, security or development agreements within this jurisdiction. Similarly there is no immediate change to the current direct taxes on real estate transactions – in the form of Value Added Tax, Stamp Duty Land Tax or Capital Allowances.
If the government anticipate a significant fall in property prices or stagnation in that sector they may re-visit the high levels of SDLT (particularly on residential property) which had already started to have an impact on the top end of the market prior to Brexit.
European Law is relevant for the financial regulation of fund structures and certain environmental legislation – particularly in relation to energy efficiency standards and environmental impact assessments and for the immediate term it should be assumed that these legislative requirements will continue.
The Real Estate Market
We have been speaking to our clients in the Real Estate sector and the overwhelming view is that it is much too early to predict what the consequences of the vote are likely to be. Prolonged uncertainty is the problem, more than the result in itself, and provided the politicians are strong and we return to political stability quickly there is no reason why the economy cannot be restructured to deal with this.
A number of common themes have become apparent from our conversations as follows:
The likely consequences of the vote are very different to 2009 when the whole world financial system was on the verge of collapse.
The fundamentals of property are still good – there is a lot of money chasing income and there are few opportunities to buy good quality income at a reasonable yield. That will keep prices up and if even they were to drop there is a weight of money ready to buy it.
Value add stock (development opportunities) are still attractive as long as pricing reflects risk.
Most well run property trading companies operate on very low gearing so there should be little risk of general meltdown in the sector.
For existing residential developments which are currently being built out it is business as usual. Appraisals may be re-run adding some additional hold time.
For developments which have not yet started, there is an expectation that building contract prices may soften over the coming months.
For foreign investors UK property just got 15% cheaper.
Interest rates are less likely to rise if not fall, the results of which we have already seen on the stock market.
Notwithstanding the above positive sentiments, there is certainly a note of caution in the air as we head towards the summer holiday season, which is generally a quieter period for real estate transactions. The next time we will be able to assess the market and the impact of Brexit will probably be in September when activity would ordinarily be picking up.