Revisited: What impact will the Referendum have on the Residential Property Market?

If we remain ‘In Europe,’ needless to say, nothing will really change and I predict that the market for property up to £1million will carry on its relentless path with growth of circa 2-4%.  This sector was excited by the government’s Stamp Duty ‘bribes’ before the Election in the Autumn Statement of 2014.  After the watershed of the Stamp Duty increases on Buy-to-Let investments in April 2016, activity in property, in this price bracket, has been subdued with far fewer transactions and a general shortage of stock.

Activity in the middle market and the super-prime sectors will continue to be dampened by the aggregated affect of Stamp Duty ‘hikes’, fiscal changes to Non Doms, ATEDs, oil price drop, the gyrations of world stock markets and the general slow down of the world economies. In this sector, illiquidity is a major problem where the numbers of transactions are down by up to 50% or more in London.  Underlying prices will continue to ease by about 10% per annum as the number of properties available overwhelm the dwindling pool of ‘real’ cash buyers around at any one time. I estimate that from the peak in May 2014 values have dropped by 30% in this sector.

Thank goodness that with oil prices remaining low there is no upward pressure on inflation and, therefore, Mr. Carney can be put back into his ‘little box’ since Interest Rates (and therefore Mortgage Rates) are not going to rise for a year to eighteen months or so, perhaps longer.

How will Brexit affect the Residential Property Market in London and the UK?

In the months following the Referendum it would take a little time for the Great British Public to digest the ramifications of being outside of Europe.  David Cameron will be ‘the walking wounded’ for a while and in all probability will bring forward his retirement plans earlier than he would otherwise have liked.  Whether the new leader will be Osborne, or more likely Boris, will be the question on everyone’s mind.  Whilst this will generate some uncertainty at first, once it settles down, there is no reason to believe that the prevailing economic policies will change very much although, I am sure, if it is Boris, he may want to ‘stamp his mark’ by way of nuances to the status quo. Let’s hope Stamp Duty is one of them. It is unlikely that Osborne will continue to be Chancellor under a new ‘Johnson regime’ and this task is likely to fall to Michael Gove who would be more than qualified for the task.

I firmly believe, along with an array of illustrious commentators, that, despite the rhetoric to the contrary, there will be inward investment from multi-national companies and investors such as Nissan, Honda, IBM, Ford, Google, Microsoft etc. who will want to benefit from the new Social Contract, relaxed labour laws and de-regulation that will, hopefully, be introduced in the period after the Referendum. This, one hopes, will enable the UK economy to ‘spin faster’ once it is free of the ‘shackles’ of European regulations which has served to slow our progress to date. Lest we forget, ‘regulation is the enemy of innovation and innovation is the engine of enterprise’.

‘Operation Fear’ has tried to make the Electorate believe that there will be an exodus of Banks going to Frankfurt from London but this is all nonsense as evidenced by the news that HSBC has recently confirmed (even before the Referendum) that its ‘hub’ will not move to Hong Kong as was much speculated hitherto.

Paradoxically, Ludwig Erhard de-regulated Germany after the war by, amongst other things, eliminating price control that allowed the country to grow exponentially such that Germany was free of food rations long before the highly regulated UK at the time.

The chances of Frankfurt becoming the new Financial Centre of the World are unthinkable.. has anyone been to Frankfurt?  Let’s put it this way …. for excitement the average ‘Frankfurter’ leaves their home at 7.30pm ‘to watch the traffic lights change!’

Thatcher de-regulated London in the ‘80s and made it open for International business.  This allowed it to metamorphose itself from a souvenir Capital (rich in heritage as Paris is today) into ‘The Greatest City on Earth’ where the centres of excellence are all, very conveniently, in one place. Today, the Capital is at the cutting edge of technology, couture, cuisine, culture, commerce and proudly boasts that it has the largest Financial Services Industry in the world.  As such, I believe, that we will be in an unassailable position despite any attempt by the EU to prize this ‘mantle’ from us.

If under a new Leader the new Conservative administration is more sensitive to the ‘woes’ of property owners in London, then an emergency Budget could be arranged to try to address some of the more draconian measures that have been imposed to date.  A new Chancellor could address the damage done to middle-income groups who have been seriously disadvantaged by government policies to-date since the Election.  Even the first time buyers have become disenfranchised by the growth in the property market at the bottom of the ladder and since the changes to Buy-to-Let fiscal legislation there will be fewer private rental properties available, with prices rising, as former landlords sell these investments which is a ‘double hit’ for them.

Which ever Chancellor presides they will have to address the intractable problem of the Budget Deficit that remains stubbornly unchanged from last year to this at £70billion. Undoubtedly, the reform of private pensions will be on the agenda which was cynically postponed by George Osborne in this years Budget in order to not offend the Electorate before the Referendum and, at the same time, soothe the inflamed emotions of the Tory Euro-sceptic backbenchers.

I know that the Chancellor wanted to ‘cool’ certain parts of the ‘runaway’ property market in London, but as we all know, governmental intervention is notoriously ‘clumsy’ when they try to interfere with markets.  He probably didn’t appreciate the damaging affects of his measures on liquidity and even Stamp Duty Receipts that, paradoxically, will be ‘down’ this year despite the rises in SDLT rates.

There are interesting times ahead of us but uncertainty undermines confidence and, as such, the sooner that we get this Referendum over and done with the better!  Let battle commence.