Before and since the result of the UK’s referendum on European Union membership, uncertainty has pervaded – not least in property markets.
Weak construction PMI data, a spate of flagship property funds halting redemptions and downgrades from City analysts has further shaken confidence. Forecasts for companies in the sector have been reduced on the basis of Brexit hitting GDP and sending the UK into a possible recession, bringing back memories of the crisis in 2008.
However, while these memories are important as the sector reacts to the challenges brought about by the Brexit vote, we should also remember that things are very different this time.
UK banks are better capitalised, housebuilders have strong balance sheets and other major western economies are in much better health. The weakness in Sterling has also made UK property more attractive for foreign buyers – causing an uptick in enquiries and reservations on some of the projects we have lent to in the short period since 23 June.
As numerous economists have agreed, Brexit is not the UK’s “Lehman moment”. Indeed leading economic forecasters such as Capital Economics are predicting no recession nor a sharp increase in unemployment.
In central London, where property market fears have been most pronounced, commercial property occupancy is higher than during any of the past three market shocks, and housebuilders are not sat on thousands of units of inventory. Indeed, the latest Molior data shows completed inventory was 2.6 per cent at the end of the first three months of 2016, compared to 24.4 per cent in YE 2010 - meaning that any negative impact can be managed.
The unknown of the Brexit environment may cause a slowdown in the short-term. But it should not cloud the overall picture of strong long-term fundamentals underpinning the sector. The UK housing supply has simply not kept pace with the demand. Indeed, only this week the communities and local government committee launched an inquiry to review the skills shortages, planning delays and finance issues which are constricting the homebuilding industry.
Through the uncertainty and beyond, the sector will also be helped by a government more committed than ever to supporting the sector, and mortgage availability that is favourable in a low rate environment that looks set to stay for even longer as a result of the vote.
The Bank of England’s announcement that UK banks will be subject to lower capital requirements to allow them to lend an extra £150bn also demonstrates important economic support against any Brexit impact on liquidity. Alternative lenders are also now even more well established and able to fill the financing gap left by retrenching banks.
So while the future of the UK property market is more uncertain in a post-referendum world, it is certainly not lost. That is, unless the markets, lenders, investors and developers choose to trade on negative sentiment, as opposed to the underlying fundamentals.