By Stefano Sciandra
Your commercial awareness dose…
With the transition period ending on December 31st 2020, the UK will officially leave the EU customs union and single market. After the EU referendum, which took place on June 23rd 2016, market participants have been planning for the worst and hoping for the best. Analysing what impact Brexit will have on the UK’s real estate market can be difficult at this stage, because of a highly possible no-deal withdrawal and the volatile economy as a result of the COVID-19 crisis. However, since much of the legislations regulating the British property market are not derived from EU law, there is cause to remain positive.
According to some experts, the changes brought about by the pandemic, and the desire expressed by many companies located in the UK to relocate to mainland Europe, could mark the end of the office. Due to COVID-19, however, companies delayed their plans to leave Britain and even if a reduction is seen in commercial development in the coming years, at present, it looks stable, and appetite for new offices still seems present. Big Tech companies, for instance, have expressed their desire to expand to London, which offers highly educate workers in fintech, data science, and life sciences.
In the case of a no-deal Brexit, the country could potentially experience labour shortages, since a large number of workers come from EU countries. There could also be disruptions in the material supply chain; The UK heavily imports materials from the EU, which would become more expensive and also be subjected to border control, negatively impacting all the stages of the construction process. However, the UK’s commercial property moves in cycles and the Government helped the sector, both after the referendum and during the pandemics.
The UK’s housing market moves in cycles, too. Britain has a well-known shortage in good quality housing, yet, with the help of various Government schemes, homebuilders are still active. The Office for Budget Responsibility (OBR) predicts that a no-deal Brexit would decrease property prices by 10%. Nevertheless, the OBR negates to mention where this drop would occur. Northwestern property markets have been quite strong, whilst in other areas are rather stagnant. Savills, a global real estate services provider based in London, is much more optimistic, predicting the UK property market to grow by 20.4% by 2024.
The Government has recently announced a new Help to Buy scheme, a loan that will help first time buyers access the housing market and purchase newly built homes. The loan will be available starting from December 2020 and homeowners will be able to move in by April 2021. Will German, the director of Help to Buy at Homes England, a body that funds affordable housing in England, is confident that this scheme will give homebuilders the confidence to keep on building at a very crucial time for the country, and first time buyers the motivation for this important step in their lives. So far England is alone in relaunching this scheme for first time buyers.
As stated by the Nationwide, the world’s largest building society, August 2020 saw the highest rise in monthly house prices in 16 years, showing an unexpected recovery from lockdown. To boost the housing market, the Government decided to extend the stamp duty holiday until March 2021. A stamp duty is a tax paid by people buying properties, which varies in different parts of the UK. The BBC reports that the government has temporarily increased the stamp duty threshold to £500,000, allowing homebuyers to save up to £15,000.
In conclusion, we can affirm that both Brexit and COVID-19 caused a short-term fall in property values. However, the UK property market is resilient and it has experienced a V-shaped recovery. Both the economic turmoil and Brexit will certainly still have an impact; A possible fall in house prices will be determined by geographical area, and by the country leaving the EU with or without a deal.
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