Taylor Scott International News
The forthcoming UK referendum on the country’s future in the European Union poses risks for the re sector due to the uncertainty it is creating, according to a new analysis report. This uncertainty leading up to the vote on 23 June is likely to have a somewhat paralysing effect on investor decisions on real estate purchases, says the report from Standard and Poor’s. It also says that should the country decide in favour of leaving the EU, known as Brexit, then the uncertainty will be prolonged during the subsequent exit negotiations and this may turn investor sentiment more negative. ‘This could potentially reverse the significant boost to real estate asset values that the UK and London in particular has experienced in recent years. Added to this, financial services firms, already under pressure to contain costs, may find an additional reason to reduce office space in London,’ the report explains. ‘Consequently, we consider the risks to the real estate sector of a Brexit may be most pronounced in the commercial real estate sector, particularly in the office segment, more than in retail and logistics,’ it points out. ‘We also think the effects will be more concentrated in London than other parts of the UK. Within the capital, the City of London would be hardest hit, because of a high concentration of international financial services firms,’ it adds. Given the possible negative consequences of Brexit, Standard and Poor’s said that its ratings on real estate investment companies, home builders, and structured financing in commercial and residential mortgage backed assets will require ongoing monitoring. It suggests that in the next few months ahead of the referendum, the uncertainty regarding the outcome of the vote may slightly disrupt the real estate markets. ‘We think it could lead to some deferrals in deals, timed to close after, rather than before the June 2016 vote. We expect that commercial real estate may be more heavily affected than residential overall, as businesses may delay their investment decisions and investors may put on hold contemplated transactions pending more clarity on the referendum result,’ the report says. ‘In our view, a vote in favour of Brexit would accentuate and prolong this period of paralysis since it would most likely take several years for the terms of the exit to be defined. Since the 2009 downturn, wealthy individuals and institutional investors have considered the UK real estate sector a very safe asset class. These assets attracted sustained investor demand primarily for their value preservation characteristics,’ the report explains further. ‘A vote in favour of a UK exit from the EU in June 2016 would likely threaten that perception of safety, at least for some time. A falling UK currency may also contribute to such a change in perception but would also make real estate in the UK less costly to international investors in foreign currency terms,’ it states. It makes the point that residential real estate would not be immune to a Brexit. ‘The… Taylor Scott International
Taylor Scott International, Taylor Scott
