While the UK may be divided between “Leavers” and “Remainers”, one of the few points on which probably everyone can agree is that it would be really helpful to have Brexit finalised. At least in one form or another so that we all know where we stand and can make plans accordingly.
In this case, “we” applies internationally as at least some global investors are now beginning to take a more cautious approach to buying property in the UK, not, necessarily, because they have concerns about the long-term future, but because they would rather save themselves the potential hassle of dealing with the short-term shock of the split.
Chinese buyers quietly withdraw from the UK property market (for now)
After the Brexit referendum, astute property investors took advantage of the pound’s tumble to buy up Sterling-denominated assets, especially property, at bargain prices. Since then, the degree to which international investors have been active in the UK property market has ebbed and flowed essentially in line with Brexit-related developments and their effect on the pound. In other words, whenever the pound strengthened, international demand weakened and whenever the pound weakened, international demand strengthened.
Now, however, at least for the time being, it looks like some international investors have decided that they will put their buying activity on hold for now until they get more clarity on what Brexit is likely to mean in practical terms. This is particularly evident in China, where, according to figures from Juwai.com, China’s biggest international property portal, Q4 2018 saw a drop off in the number of Chinese investors buying property in the UK and this downward trend is expected to continue into Q1 2019, although the data has still not been fully collected.
The weak pound has become the new normal
Even though buying activity slowed in Q4 2018, it was still almost twice as high as it was in Q4 2017. This suggests that the reason why Chinese investors are increasingly “standing pat” on UK buy-to-let investments is not because they fear for the long-term future of the UK economy, or because the UK’s prized tertiary-education system has lost its appeal, but because there is now a perception that a weak pound is now the new normal and hence there is less of a sense of urgency to snap up bargains quickly.
Instead, there is more a consensus that a hard Brexit could weaken the pound even further, meaning that Sterling-denominated assets would become even more of a bargain and hence anyone who buys now risks, effectively, overpaying (as compared to the price they could have achieved had they waited). If the pound remains static, then really nothing will have changed and if it rises (on the back of a soft Brexit) then it will increase the value of assets investors have already purchased.
Competition from other buyers may spur action
While China has long been a source of investment funds for the UK, in property and elsewhere, it is far from the only one, especially not when it comes to the UK’s property market. Chinese investors are known for being very price-sensitive, but they also recognize value and it is doubtful that they will simply sit back and let the competition beat them to the best assets.
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