It’s fair to say there hasn’t been much activity in the U.K.’s luxury housing market lately. Not only has the country been hit by two unpopular property sales tax hikes since the end of 2014, but tomorrow’s highly anticipated Brexit vote, which will decide whether or not the U.K. leaves the European Union, has also weighed heavily on the actions of both would-be buyers and sellers.
Knight Frank, the global real estate consultancy, said recently that there has been a discernible “Brexit effect” on the economy as buyers and sellers are postponing decisions because of the prospect of entering unchartered economic and political territory, while Mayfair-based brokerage Wetherell calculated that there had been a near-50% drop in the number of sales in its neighborhood compared to 2014.
As a Brexit is now looking much more likely than just a few weeks ago, Mansion Global runs you through what a “leave” vote could mean for wealthy international homebuyers.
U.K. House Prices Could Fall by Double Digits:
George Osborne, the U.K. finance minister, has warned that house prices could slump by as much as 18% in the event of a Brexit, as the U.K. economy grapples to keeps its head above water.
While this will be bad news for homeowners, it could present opportunities for those thinking of buying — especially since the average price of a home in the U.K. is at a record high of $299,810, according to the latest available figures from Nationwide building society.
This is the same story for the luxury market. While average price growth in the most expensive neighborhoods in London — including Knightsbridge and Chelsea — has turned negative on the back of higher sales taxes dampening demand, the average cost of a home in these areas is still extremely high. According to Christie’s Real Estate, London’s upmarket homes are the third most expensive in the world per square foot — after Monaco and Hong Kong.
A Fall in Sterling Could Mean a Further Windfall for U.S. Dollar-Backed Buyers:
Wealthy foreign buyers could scoop up some bargains in the U.K.’s luxury housing market if Britain votes to leave the European Union. Some brokers predict that dollar-backed buyers could flood back into the market if sterling slides in the event that Britons vote in favor of a Brexit, making properties much cheaper for them.
A report from think-tank Economist Intelligence Unit predicted last week that the uncertainty caused by a “leave” vote would upset consumer and market sentiment, causing a 14-15% devaluation of the pound against the U.S. dollar.
MORE:Expectations on U.K. House Price Growth Slips to Three-Year Low Ahead of Brexit Vote
As a result, Trevor Abrahmsohn, managing director of Glentree International, a London-based brokerage, has predicted that prices in some of the most exclusive parts of London, such as Mayfair, could become 50% cheaper for dollar-backed buyers from the U.S., Iran, Russia and the Middle East among others than during their peak in 2014.
Other Major Global Cities Could Start to Look More Attractive:
While London has prestige among a lot of foreign buyers and many will want to scoop up good bargains if a Brexit happens, there are also other factors to consider. Some will want to have a home in an EU country, instead, for various reasons such as business or ease of travelling between nations.
“Those buying at the top end of the market do have extra choice, and if they are concerned about having a place in European Union it's more likely that they would choose one of the other major European cities – Paris, Rome Milan, Berlin etc. rather than in Asia or Americas,” Fionnuala Earley, Countrywide's chief economist, said.
MORE:For Foreign Buyers, Times Are Getting Tougher
At the same time, there will be others who don’t want to take the risk of buying in London in the event of a Brexit and are not bothered about having a European base so will be looking instead at other global cities such as New York, San Francisco and Hong Kong.
However, there’s quite a bit of trepidation and uncertainty surrounding American investments in the run-up to the presidential election in November, so luxury buyers may choose to hold off on their buys in U.S. cities like New York and San Francisco until after then.