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News from Knight Frank Hong Kong

UK EU Referendum Result

24 June 2016

The UK today announces the EU referendum result with 52 per cent voted to leave the European Union. Knight Frank expects the Brexit will have far reaching repercussions for the UK and indeed the global economy and property markets.

Key views:

  • The vote to leave increases near-term risks facing the UK economy. 
  • An interest rate cut by the Bank of England is a strong possibility, as is more quantitative easing.
  • For both residential and commercial property, there will be short-term market volatility. Potentially, and in selective instances, pricing could come under pressure.
  • However, for both residential and commercial property, the long-term market dynamics remain unchanged. Low supply will continue to be a day-to-day market reality.

James Roberts, Chief Economist, says, “One of the first outcomes from the result of the referendum is that the value of the pound will inevitably fall in the near-term, as will the stock market. In the light of the above risks we expect an interest rate cut of 25 basis points by the Bank of England is a strong possibility.”

“Consequently, we see the effect on the UK as consisting of a high speed mini-economic cycle. On  one hand, a combination of falling sentiment and those investors who are over extended having to sell will result in some disposals which will be likely to weigh on asset prices. On the other hand, the combination of lower prices, plus exchange rate effect should then draw in overseas investors looking to acquire assets in the UK. The re-emergence of inflation will in our opinion push investors towards growth assets later this year or early next, resulting in asset prices for the more robust sectors going back to roughly where they were pre-referendum by summer 2017.

The underlying strengths of the UK economy remain in place, and ultimately real estate is an investment that works best for those who pursue long-term goals.”

Nicholas Holt, Head of Research for Asia Pacific, says, “The UK has long been a destination for Asian real estate investors, with the attraction of the strong liquidity, stable governance, transparency and clear title, meaning that investors from China, Hong Kong, Singapore, Malaysia and Thailand have all invested in bricks-and-mortar in the country.

“With the decision to exit the European Union, for existing Asian property owners, the fall in the pound will impact the repatriation of any income returns, as well as the gains on any disposal. Although there is likely to be more volatility in the market, ultimately most investors are looking to the long term – so will continue to hold their assets, in the hope that any short-term instability will eventually subside when more clarity of the UK’s role in Europe is determined.

“The decision, however, could also present a buying opportunity, as the significant drop in the value of the pound, as in 2009, could lead to an uptick of interest by Asian investors, who, over the last few months have adopted a wait-and-see approach to the referendum – and will now see their buying power increase significantly. 

“Chinese, Singaporean and Hong Kong investors especially, looking at both residential and commercial properties – most likely in London – will be monitoring the market carefully and looking for opportunities to potentially increase their exposure over the coming weeks and months.”