Brexit has been met by a collapse of financial markets which has created vast uncertainties for British property buyers. Those buying overseas have no idea whether they will be able to live in the EU, or how they will be taxed on their properties; in the UK, the financial storm, together with the effect of uncertainty on foreign purchasers could put property prices in jeopardy.

The effect on estate agents selling EU property could be horrific. We don’t know whether Britons will be able to reside abroad, or even whether they’ll need visas to travel within the EU; tax treaties could unwind, exposing British buyers in France, for example, to higher rates of capital gains tax on an eventual sale. Healthcare entitlement is another issue, particularly for those who had aimed to retire abroad. The pound’s fall against the euro has already made Eurozone properties more expensive.

Worse, it seems that far from bringing clarity, the narrow victory for ‘Leave’ has instead continued the uncertainties. No one knows on what terms Britain might exit the EU, whether an exit will certainly occur, or whether there will be a second referendum; meanwhile, both main political parties are leaderless, and Scotland, Northern Ireland and Gibraltar are all resisting a Brexit.

THE SCHENGEN QUESTION… AND OTHERS

One factor that hasn’t been mentioned yet, but will surely cause problems if Britain exits without freedom of movement, is that non-EEA/EU nationals can only stay in the Schengen area for 90 days in every 180 days. That could be a major disincentive for those who want to spend a significant amount of time in their holiday home, or eventually to retire there.

There’s even talk of British pensioners abroad selling up and coming home as the value of their sterling pensions plummets. If that happens, British-dominated markets could be hit severely. So it looks as if Brexit may have killed the market for EU properties sold to British buyers.

However, there are a few bright spots. First of all, if a spike in Google searches for such phrases as “move to France,” “how to emigrate,” and “getting an Irish passport” can be trusted, there are large numbers of Brits looking to get out. Countries with ‘golden visa’ schemes, which link the purchase of a property to the granting of long term residence permits, could benefit; not only will buyers get residence in that country, but they can eventually qualify for citizenship, and get travel rights throughout the EU.

RICS had already reported that uncertainty over the EU vote had led to the largest fall in buyer numbers since the credit crunch. Continued uncertainty could mean further falls.

Both Portugal and Spain grant ‘golden visas’ to anyone spending more than EUR 500,000 on a property; that can lead to citizenship in Portugal after six years, though Spain takes ten (and unlike Portugal, doesn’t allow dual citizenship). Greece grants a renewable five-year residence permit for a EUR 250,000 investment, and grants citizenship after seven years, and Malta has a scheme with a value of EUR 320,000 (except in Gozo and the south of Malta, where it’s EUR 270,000). That could make property investment in those countries an interesting proposition for wealthier clients – though it should be noted that the residence permit doesn’t necessarily carry the right to work in the country.

Golden visas were originally intended for non-EU citizens and have sold particularly well to Chinese investors who want free access to the EU. But there’s no reason they shouldn’t be suitable for UK investors post-Brexit. Carrie Frais, at Barcelona based high-end agent Lucas Fox, says recent days have seen an increase in property enquiries from UK buyers, though so far, no one’s asking about the Golden Visa, as most people are assuming that freedom of movement will remain.

BENEFICIARIES

Having eurozone properties should also become more attractive to Britons as sterling continues to fall. However, that’s an argument that also applies to non-EU property markets, such as the US – and with the dollar strengthening against both the euro and the pound, that might make the US market more attractive.

Indeed, the big beneficiaries from the turmoil might be non-EU property markets, particularly those which make it easy for non-nationals to reside there.

Countries with retirement programmes, like Panama or Malaysia, could benefit.

Some British-heavy areas such as the Dordogne and Costa del Sol could see weakness if freedom of movement is limited. However, those purchasing in areas of strong local demand, such as Paris or Barcelona, should not see any impact. Kyero points out that Brits account for only four per cent of the overall Spanish market, so that the impact of Brexit on the market as a whole should be limited; Martin Dell says that Murcia is the most exposed area, but expects Spain will reach some kind of bilateral deal with the UK.

MEANWHILE AT HOME…

The impact on the UK property market could be more serious. In immediate reaction to the poll result, Barratt shares fell 19 per cent, Wimpey 15 per cent, Countrywide 19 per cent and Foxtons 17.5 per cent. Challenger banks such as Shawbrook and Aldermore, which have been active in property lending, also took a big hit. Commercial property suffered just as much as the housebuilders. Investors were selling pretty much everything on the stock market, but it’s interesting that according to online platform rplan.co.uk, 76 per cent of all withdrawals were being taken out of property funds.

Was that an overreaction? Some industry figures are saying that nothing has changed, and there has been a small bounce in the most oversold shares. But it’s clear that London’s status as a ‘safe haven’ is now being questioned, and those foreign investors who saw prime central London property as a way in to the EU will be looking elsewhere (perhaps to those ‘golden visas’) for their entree to the single market. The fall in the value of sterling may make properties cheaper for foreign investors, but its severity and suddenness may make them fearful that a weakening currency will dilute their investment returns.

REGIONAL FEARS

Brexit seems likely to widen the cracks that had already been evident in the central London market. Foxtons had already seen the impact of uncertainty over the referendum result; the firm says the result has now increased uncertainty and hit the market, and it issued a profit warning that said profits will be ‘significantly’ affected. Meanwhile, high end agents such as Champions have already seen buyers pulling out of purchases.

However, some firms are expecting to see overseas investors take advantage of the sterling crisis to grab bargains. London Central Portfolio points out that only 12 per cent of buyers come from the EU, while Asian and Middle Eastern investors have already been making inquiries following the fall in sterling.

The impact outside London is less easy to assess. Richard Donnell of Hometrack says that the immediate impact is likely to be a fall in housing turnover as buyers decide to wait and see what the fallout from the vote will be; he also expects a deceleration in house price growth, though not falling prices. RICS had already reported that uncertainty over the referendum result had led to the largest fall in the number of buyers since the credit crunch, and continued uncertainty could see it fall further. That makes Brexit much worse news for agents than it is for homeowners, particularly if sellers also decide to hold fire, making inventory even tighter than it already is – property prices may not fall, but the market looks likely to bog down with markedly fewer transactions and slower sales.

Longer term, a number of observers are forecasting a fall in prices, though they disagree on the severity of that fall. The NAEA predicted that by cutting immigration a leave vote would cause a £2,300 average fall in house prices by 2018 (£7,500 in London) – that’s just one per cent of the average price. On the other hand, the Treasury forecast an 18 per cent fall, which is well into crash territory.

SEEKING A SILVER LINING

However, major uncertainties still remain. One major factor will be the level of economic damage sustained by British industry. If major foreign companies decide to close British factories, and exporters lose significant amounts of export orders from Europe (there’s some evidence that this has already been the case for some), then unemployment is likely to rise. Add to that the possibility of EU nationals deciding to leave the UK owing to uncertainty over their future residence status, and we could have very weak demand for housing within a year. No wonder the Bank of England is mulling a further cut in interest rates; but with rates already at historic lows, it’s difficult to see how much stimulus it can really impart to the economy.

There are some silver linings to the cloud. Agents in London and the South-East may well be able to focus on well-heeled Asian and Middle Eastern clients; interest rate cuts might help keep the housing market relatively stable. But Brexit is a very big cloud, and estate agents will need to be clever to manoeuvre their way successfully through the post-Brexit world.

Do YOU have a Brexit strategy?

Software experts DezRez undertook a survey of 132 of its estate agent customers, to understand their views on the immediate and future impact of Brexit. 54 per cent say it is too early to have, or believe they don’t need, a Brexit strategy, 16 per cent have a strategy in place and 13 per cent are working on it.

THE IMMEDIATE IMPACT:

• 42% believe that Brexit had already had a negative impact on their business. One said that 10% of sales fell through and valuations were down 40%.
• 33% predict a reduction of 5 – 20% in stock and that property values may drop by 5 -15%. Fewer than 10% estimated property values tumbling by 20 – 50% of their current market value.
• 52% expect buyers or vendors to pull out of sales.
• A mere 5% reported a lift in activity and 53% had seen no effect to date.

THE FUTURE IMPACT:

• 37% believe Brexit won’t have a long term impact on business, 37% are either unsure, 22% anticipate a change in the market and their business model.

Justin Morris

CEO, Dezrez, said, “As the economic landscape shifts, the BoE Governor Mark Carney warned buyers to proceed carefully if planning to borrow money. This warning, and the analysis from property professionals, is unsurprising, but until the market settles, we won’t know the effect Brexit will have. “Our customers say:

• If prices dip further, vendors will pull out of sales. Opportunist buyers may jump at the chance to renegotiate on price. More prudent buyers will be looking at how it affects their finances.
• Many believe that there are still more buyers than sellers. So, whilst a base reduction in housing stock and value is likely, the market could remain steady.
• During this turbulent time, the role of the estate agent will be increasingly important to vendors and buyers. Negotiations may become more complex, consumers will rely heavily on traditional estate agents for their experience and advice.”