It is fair to say that property is often cited as one of the sectors likely to prove most resistant to Brexit, but it is equally fair to say that there are still a number of concerns surrounding the impact that leaving the EU will have on the sector. Naturally, investors are keen to keep abreast of just how good or bad the situation is looking.
It would not really be sufficient to talk about Brexit specifically without talking about the wider backdrop. For many investors, Brexit fears seem to have come at what was already a bad time for buy-to-let. We are in the relatively early stages of tax changes that will hit the profits of many investors, rolling out in phases up to 2020, so the vote in favour of leaving the EU has added to a not-insignificant pile of existing concerns.
The publication of a government white paper last month, titled “Fixing Our Broken Housing Market” last month was received by many investors as further bad news. It contains fresh proposals which aim to both improve conditions for tenants and expand their options, and while these are of course not bad goals in themselves there are concerns about how far this could be at the expense of landlords.
These fears are arguably misplaced, however. The tax reforms rolling out, announced over the past couple of years, represented the government trying to make the market more favourable for owner-occupiers over investors. The recent white paper seems to indicate a shift in priorities towards improving the rental market, and this is not likely to be a bad shift for investors. The positives of the white paper are perhaps evidenced by the stock market reaction to its publication; a boost for the share prices of just about all major listed developers.
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The stock market’s was not the only positive reaction to the paper. A statement from the Confederation of British Industry (SBI) welcomed the publication as one which provided solid support for institutional investors. Aside from being a clear good sign, it is this point that brings us back to Brexit.
One of the key issues surrounding Brexit and what it is likely to mean for property has been the effect on institutional investment, and particularly investment by overseas institutions. Despite a group of foreign investors being attracted by the low value of the pound, the net effect of the referendum result has, to date, been a significant drop in activity from this group. The actual triggering of Article 50 and withdrawal of the UK from the Union has the potential to sharpen this blow, and the potential stifling of funds flowing in through these channels is often cited as one of the key dangers Brexit poses to the market.
In this situation, the publication of a paper which has been hailed as supportive of institutions is reassuring in itself and a good sign for the government’s approach to handling this matter. It could lead more institutions to be attracted by the low value of the pound – not exactly a trivial factor at present – rather than repelled by concerns that Britain might become more difficult for investors. Add the fact that sales were already picking up in late 2016 after the shock of the referendum, and the situation really does not look so bad.