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Brexit update: Should you invest now or wait and see?

October 19, 2016Article by Paul Avery

With the pound lingering at record lows and UK politics changing by the day, British buyers and international investors alike are rightly wondering where the property market is heading.

While we don’t have a crystal ball here at Property Frontiers, we are feeling increasingly confident in our answer to the question we’ve been hearing most lately. The question is ‘should I invest now, or wait and see?’ The answer of course depends on your individual circumstances, but the evidence is mounting in favour of moving now. Here’s my opinion as to why:

You snooze, you lose

Brexit is undoubtedly a game-changer, and when the playing field shifts like that, it creates opportunities to get ahead as well as potential pitfalls. Some investors thrive on situations like these, hunting uncertainty around the world, while others let themselves be paralysed into not investing at all. I wouldn’t particularly recommend either course, but there is a happy medium.

The clearest reason the UK falls into this category at the moment is sterling’s recent plunge: the currency play represents a huge opportunity for international investors. Heated debate about whether the pound will climb, settle, or fall further is pure speculation. It is a fact, on the other hand, that British property is around 20% cheaper than it was before the referendum for buyers with dollars and/or many other currencies, especially those pegged to the dollar (e.g. BHD, HKD, QAR, SAR and AED). Savings of that magnitude render further gambling unnecessarily risky, in my opinion.

Delaying in order to beat the pound could go either way; delaying in order to beat the property market, however, is very wishful thinking. Every week, more and more statistics confirm the industry consensus that (barring a full-blown recession) house prices are not going to get any cheaper any time soon, and the fundamentals in most markets still point to chronic undersupply.

Positive data

On Tuesday, ONS released its latest house price index, which reports price increases in the year to August of 8.4%, up from 8% in July, and never dropping below 7% this year. Even the Nationwide index, based on less optimistic survey data, rather than actual registered sales, reports that the worst monthly change since the referendum was a 0.2% increase (that was obviously July).

In my view, what we have seen in the past few months is a temporary slowdown in a long period of excellent growth underpinned by strong fundamentals. This plateau offers a vanishing window of opportunity before prices ramp up again, and even if we get more surprises next year they may not offer anything better.

A new RICS survey reports that demand ticked up in September while average stocks on property agents’ books were close to historic lows. August’s drop in mortgage rates will also boost demand and support price levels. And whether values increase substantially or not, in a super-low interest world, British rental yields remain amongst the strongest across the many markets we cover. RICS has further identified a “critical rental shortage” in the UK, predicting 1.8m more households will be looking to rent rather than buy a home by 2025, while Countrywide forecasts a 4% increase in rents in 2017 and again in 2018.

As the best and brightest of the industry rub shoulders at MIPIM this week, congregating under the banner “extraordinary times, extraordinary returns?” I remind investors that there are certainly profits to be had in the UK market and to be wary of dismissing making a move due to volatility. Property is still among the safest and most stable of many asset classes, and now remains a favourable time for those that have cash (especially in different currencies) and are seeking long term investment opportunities .

Author

Paul Avery

Paul joined us in 2016 to lead our in-house research efforts, producing reports and guidance for clients as well as the strategic market analysis behind our new project launches. His background is in sustainability in the construction sector, and he is currently being trained in property valuation to further bulk up his investment creds.
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