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Britain may be over 3,400 miles from New York City, but as the possibility of a no-deal Brexit continues to loom, many onlookers on both sides of the pond are beginning to wonder what will happen to both global and local real estate markets. Yesterday, British Prime Minister Boris Johnson said Brexit will go through on October 31 with or without a deal, though European Union leaders aren't exactly on the same page. A new agreement was hashed together between Boris and the European Union on Thursday that would allow the country to leave the EU after a transition period lasting until year-end 2020. The agreement must now be formally approved by the U.K. Parliament which has already rejected a previous deal three times and cost previous Prime Minister Theresa May, her job.
If the agreement is accepted in tomorrow's Parliament vote, a year of negotiation would work on trade deals and other arrangements between the country and the EU. A still very-possible no-deal Brexit will not be just another political upheaval but according to the Yellowhammer report, a no-deal Brexit could result in widespread transportation delays, food shortages, medicine shortages, and a host of other problems.
There is no question that London and other urban centers in the United Kingdom will be impacted, at least temporally, if a no-deal Brexit comes to pass. As for world real estate markets, including New York City’s market, however, there appear to be few indications that a no-deal Brexit will have any significant effects.
In a no-deal scenario, house prices are expected to fall -6.2% in 2020 in the UK — KPMG
What a No-Deal Brexit Could Mean for UK Real Estate
KPMG’s September report outlines two potential Brexit scenarios and their impact on real estate markets. In scenario one, the chaos currently structuring UK politics is resolved, and the United Kingdom doesn’t leave the European Union in a no-deal situation. If this happens, KPMG analysts predict that the UK economy will see at least some growth in 2020 with house prices holding steady in London and rising 1.3% nationwide. By contrast, if there is a no-deal situation on October 31st, the economy and UK real estate market are expected to both take major hits. According to KPMG’s analysts, in a no-deal scenario, house prices are expected to fall -6.2% in 2020. Urban areas, particularly London, will experience greater losses—according to KPMG, London real estate could take a -7.0% hit in the case of a no-deal Brexit. But not everyone in the real estate industry agrees with KPMG’s doom-and-gloom predictions.
Don’t Expect a London-to-New York Exodus
To explore how a no-deal Brexit might impact London and local real estate markets, Market Insight reached out to two agents—James Morgan, a broker at Compass, and Daniela Sassoun, a broker at Douglas Elliman. Both agents work with high-net-worth clients who own properties in New York City, London, and other parts of Europe. Neither broker predicts any significant fallout, even in the case of a no-deal Brexit.
“I feel like the market has already corrected due to the Brexit threat,” says Morgan. “Any uncertainty in the UK market has been there for several years now. There may be a temporary bump, but it seems unlikely that a no-deal with have any long-term impacts in London or New York.” Notably, since the vote in 2016, according to a recent report by Mansion Global, sales across the United Kingdom have dropped 9%, and in some of London’s poshest neigbhorhoods, including Chelsea and Kensington, sales have dipped 42%.
'Neither the London nor New York buyer are impulsive. They are buying for the long-term, not short-term.”' — Daniela Sassoun, Douglas Elliman
Despite evidence that the luxury side of the market in particular has already taken a huge hit, there is some speculation that a no-deal Brexit may further impact the local market as ultra-wealthy individuals move out of London to New York City and buy up some of the city’s growing surplus of luxury units. This speculation reflects the fact that London is currently home to the world’s largest ultra-high-net-worth individual (UHNWI) population (individuals who are worth at least $30 million USD, excluding their primary residence). But again, there are few indications that a no-deal Brexit will result in many UHNWIs shifting their money from London to New York City.
As Sassoun explains, “London is London, and it is not going anywhere. With or without Brexit, it won’t change—it will still be one of the world’s great art capitals. If a buyer loves London, they are still going to invest in London whatever happens.” Sassoun also emphasizes than most of the high-net-worth and ultra-high-net-worth clients already own properties in New York City and London. As a result, it is unlikely they will find themselves choosing between these two world capitals.
What About the Pound Sterling’s Sliding Value?
Finally, there is the question of the pound sterling’s sliding value. Again, there appear to be few indications that even if the pound sterling loses additional value that London or world real estate markets will experience any long-term effects.
As Sassoun emphasizes, “Neither the London nor New York buyer are impulsive. They are buying for the long-term, not short-term.” She adds that her clients—generally, people looking to spend 5, 10, or 20 million on a property—are already more cautious than they were seven years ago, which further suggests speculation is unlikely if the pound loses further value. Still, Sassoun acknowledges, “For investors who like certainty, New York has always had a lot to offer and may seem more attractive now, but again, if a client loves London, they are unlikely to pull out due to small market fluctuation.”
'I’m seeing some of my London clients holding back—the pound is not doing well at the moment and could lose more value, so they would rather keep their cash until the market rebounds in the UK.' — James Morgan, Compass
Morgan generally agrees, but he has observed at least one trend that may have a minor impact on the local market—UK buyers choosing to rent rather than buy in New York City while they wait out the pending storm. “I’m seeing some of my London clients holding back—the pound is not doing well at the moment and could lose more value, so they would rather keep their cash until the market rebounds in the UK.” As an example, Morgan pointed to one recent client hoping to move his family from London to New York City. “This client was looking at apartments in the $20 million range, but with the pound in its current state and so many rentals available on the luxury side of the market, he’s decided to hold his cash and rent instead.”
Notably, Morgan and Sassoun aren’t alone in predicting that Brexit, even a no-deal Brexit, may have few impacts on real estate markets in London and around the globe. The Knight Frank Wealth Report, which offers insight on luxury real estate markets, also suggests that whatever the outcome of Brexit, London will remain on top. In fact, the 2019 report optimistically states, “Hard Brexit, no Brexit, Brexit-lite: whatever the outcome, London will remain the leading global wealth centre in 2019.”
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Contributing Writer
Cait Etherington
Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.