UK property takes a hit after Brexit vote

UK property takes a hit after Brexit voteLatest market surveys reveal significant deterioration in market sentiment in the UK following the Brexit vote, but ramifications for Australia’s property market appear to be minimal.The Royal Institute of Chartered Surveyors (RICS) has published its UK Commercial Property Market Survey for the second quarter, finding that a “heightened sense of caution is visible across both investment and occupier sides of the market, with uncertainty pushing rental and capital value projections into negative territory.”RICS says the office and retail sectors experienced the steepest decline, with both “comfortably in negative territory”. While the industrial sector softened considerably, it remained positive due to tight supply and demand conditions.Investment enquiries fell sharply to -16 per cent. Foreign investor demand fell even further, to -27 per cent. The trend was more pronounced in London, where investment enquiries fell to -41 per cent – the weakest recording since 2009.RICS also predicts rents in London across sectors will fall three per cent over the next 12 months.The weakening commercial market is mirrored in the residential market. Britain’s second largest real estate agency, LSL, has reported that business is slow and annual profits will be “significantly lower than anticipated”. London agency Foxtons issued a similar prediction in late June, and French bank Société Générale has warned that “a price correction of even 40- per cent in the most expensive London boroughs” could occur.Shares in residential construction companies fell by 40 per cent immediately after the Brexit vote, and while there has been some recovery, the full losses are yet to be recouped. Shares in the country’s biggest residential developer, Barratt Developments, have dropped by 28 per cent, and the company has said it may build fewer homes due to the current uncertainty in the market.The ramifications for Australia’s market appear to be minimal. LaSalle Investment Management’s mid-year Investment Strategy Annual predicts that fluctuations in Asia Pacific’s real estate market are “likely to be shorter-lived and less severe than many investors fear”.Any correction in real estate pricing is expected to be largely restricted to the UK over the next 18 months, and medium-term capital inflows into real estate will only be interrupted, not reversed.”The predicted re-pricing of UK real estate will lead to an opportune time to enter the British market – particularly for US dollar-denominated investors,” LaSalle’s authors find.