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Could Brexit Really Damage Property Sector?

Industry Insight March 24th, 2016
Could Brexit Really Damage Property Sector?

As the possibility of a “Brexit” becomes increasingly plausible, how could this affect the domestic property sector?

Over the past few weeks, the fears of a possible “Brexit” from the EU have become increasingly prominent. Various politicians have shown support for the “Brexit”, while studies have found that large numbers of the British public are swaying towards a “Brexit”. Much of this has been affected by modern crises such as the EU economy and the immigration crisis. After yesterday’s horrific bombing in Brussels, the voices for Brexit will only grow stronger, as people seek tighter borders and more controls over immigration. These changes are already affecting the state of the domestic property sector due to the current uncertainty.

It seems strange to think that such a politicised debate regarding EU membership could have such an effect on the domestic housing market. Indeed, some experts have taken the view that, whichever way Britain votes, it will have little impact on the domestic economy. They cite the view that the average British consumer will experience little to no impact on their decision to buy a house whether Britain remains in the EU or not.

However, these experts fail to recognise that Britain is one of the highest recipients of global foreign investment. The property market in the Capital is highly exposed to foreign investment, with Knight Frank reporting that 49% of investors in central London property are foreign buyers. If these corporations, institutions, and individuals from foreign regions feel uncertain about the viability of investment in the UK with the possibility of Brexit, then investment levels could rapidly drop. The prime residential sector is particularly vulnerable to an exodus of foreign investment, since it is an area with high levels of foreign capital. If the UK fails to be as a safe-haven for property investments then these investors may choose to place their capital elsewhere.

Another issue with a Brexit is that it could exacerbate the existing skills crisis in the construction market. The industry is already short of skilled workers and largely reliant on overseas labour. If a Brexit was to occur, then there would be an exodus of workers away from the sector. This could further hamper the ability of the construction industry to meet the high levels of demand for new developments in the UK property sector.

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