London Housing Post Brexit – What Lies Ahead

With Brexit now closer than it has ever been.  Europe starting to play hardball – President Donald Tusk warns that the negotiations could be confrontational.  What is the investor play for London’s property?

According to DMZ data, London property prices have risen 85% since 2009, but started a downward spiral from 2015 (pre Brexit vote).

“One of the best trades you can do right now is something you’ll only see every few decades, and that’s basically going long London real estate,” Kay Van-Petersen, global macro strategist at Saxo Capital Markets, told CNBC

Knight Frank flagged declines in prime central London real estate, blaming in part the introduction of a stamp duty on high-value property, which has since been extended to include second homes and buy-to-rent properties.

All of the headlines are reporting a collapse in the house prices for London’s capital and pointing to bumper bargains for foreign buyers.

Van-Peterson thinks differently.  Going long London property over the next five to ten years is his strategy trade.  Steering away from the crowds and buying when the markets are low.  He thinks the London property market will bottom out in the next 6 months.

Van-Petersen said he believes the U.K. will emerge from its EU exit “leaner, meaner, and just much better.” Investors who go long London property, he argued, aren’t just getting property in one of the capitals of the world at multi-decade lows on the pound. They’re also betting on the world’s wealthy.

“In essence, what are you being? You’re being long emerging-market billionaires, you’re being long emerging-market new wealth because London always ends up being a trophy city, right, at the end of the day,” he said. “To me it’s the screaming, screaming kind of trade. You’re not going to see something like this again for a long time.”

In that time, negotiators for both sides will hammer out the shape of the new U.K.-EU relationship, determining the rules of engagement on everything from trade and tariffs to security and immigration. And let’s not forget the price tag, with estimates the U.K. may have to pay 55 billion to 60 billion euros (£47.11 billion to £51.39 billion) to leave the bloc — even though the U.K.’s Brexit minister David Davis said they don’t expect to pay anywhere near that amount.

The “City” or “Square Mile”, home to over 250 foreign banks and the Lloyd’s of London insurance market, faces upheaval as firms decide whether to shift jobs to continental Europe to keep serving customers there after Britain leaves the EU in 2019.

DMZ thinks, there remains a high level of speculation over the impact of Brexit on prices of UK – most notably London – property.  While it may be too early to discern its likely long-term impact, in the past few months following the initial shock of the UK vote to leave the EU, we are witnessing strong signs that initial fears that the vote would cause a downturn to the housing market have been defied, and confidence is now returning to the market.

Figures from the Bank of England also revealed a rise in mortgage lending with over 67,000 home purchase mortgages being approved in December 2016, meaning that house lending was up by 10 per cent on the low level of 61,359 in August, shortly after the Brexit vote.