It has been highly debated what a possible Brexit vote on Thursday could mean for the UK housing market. Especially the London housing market, which is largely fuelled by the demand of overseas buyers, are under threat of trembling greatly if the UK chooses to leave the European Union.
In the past months it has been recorded that asking prices in London’s most exclusive areas have been slashed by considerable amounts. Property portal Propcision stated in May that “a prime Central London property in Belgrave listed for £42.5 million has had 14pct reduced from its asking price since coming on the market. This represents a whopping £6 million being wiped-out from its original valuation.” The report further stated that Westminster, Kensington and Chelsea being the areas most affected with properties loosing as much as 22% on their initial asking price.
A Brexit vote on Thursday may see an extension of this trend to more areas and lower valued properties as uncertainty in the markets, fear of an economic downturn and loss of interest of international buyers may drive down demand.
Especially with Chinese investors, who have shown great interest in the London housing market in recent years and helped to support the constant price rise, may in the future refocus their attention away from the London housing market.
Chinese property portal Juwai.com stated this week that a Brexit would be unlikely to lead to changes in Chinese demand for London properties. CEO Charles Pittar told CNBC on Tuesday that Chinese interest in the London housing market was based on lifestyle factors that were unlikely to change after a Brexit vote. According to him a large amount of Chinese property demand is fuelled by parents looking to buy properties for their children as they go to study in London. High quality education is therefore a main factor driving overseas property demand in the UK’s capital.
However, Pittar’s focus on education as prime reason for property demand may turn out to be an issue in the long term due to the effect a Brexit vote could have on the UK’s higher education system. As Stephen Hawking stated recently, one of the biggest Brexit concerns is the loss of EU university funding which could mean a downturn in the quality and quantity of research undertaken at UK universities and see the UK higher education system losing its’ status as one of the best in the world.
At the same time China and other Asian countries have over the past years greatly improved the quality of their higher education and multiple Chinese universities are now counted under the best in the world. These ongoing developments could see interest of Chinese students to enrol in UK universities decrease and therefore lower the necessity of Chinese to buy property in London.
Further concern comes from the overall slowdown of the Chinese economy which raises cause for concern of the general dip in interest of Chinese to invest in overseas property.
As to demand from other overseas destinations, it can be argued that a great amount of demand from overseas buyers is driven by London’s role as financial hot spot. London and Frankfurt as far represent Europe’s main financial capitals with London so far being considered the number one financial capital in the world. However, the uncertainty in the markets and unfavourable changes to the Pound post Brexit could lead to a push towards Frankfurt in the long term, making it the more attractive location for investors in Europe.
