The UK's Brexit vote cannot take all the blame for the current property market jitters, Charles Ostroumoff, director of Arca Property Risk Management, told PropertyEU's Outlook Investment Briefing in New York last week.
The referendum result was a shock to the system but not a bolt from the blue: it happened against a background of months of declines in transaction volumes not just in the UK but in Europe too, experts agreed during the breifing.
'Global deals have slowed: deal flows in the first quarter of the year were down 33% in the UK and 25% in Asia and the US,' Ostroumoff pointed out. 'How much of that was due to Brexit? From a global point of view I would say it was marginal.'
Robert White, founder and president, Real Capital Analytics, agreed: 'It is important to realise there was already nervousness among real estate investors well before Brexit became a big concern,' he said. 'There was a perception that London was overpriced, like New York, so a correction was on the cards.'
In the post-Brexit world investment flows may reverse and go from Europe to the US, White said: 'The US will see some benefit as at least part of the capital flows that would have been channelled towards Europe get directed towards the US in the near term. It has been overshadowed by the Asian flows, but European investors have been active in the US. The obstacle now is the stronger dollar.'
There is also another obstacle: just as most investors did not really believe Brexit would happen, until recently they did not take the possibility of Donald Trump as US president at all seriously. Now the situation has changed, as once again politics is having an impact on investment decisions.
'The US has been capturing increasing capital flows, but now people are not sure, they are saying you know what? Let's wait until after the November election, in the same way that they said let’s wait until 24 June after the referendum in the UK, because they do not want to get burnt twice in one year,' said White. 'The uncertainty is spreading, and people are really scared.'
Europe is unlikely to profit
In this uncertain climate, the only spur to action, said Adam Handwerker, managing director, Hodes Weill & Associates, is that 'a lot of investors need to invest their money, and that compared to other asset classes real estate is still a very attractive investment is you have a long-term vision.'
The US may benefit but Europe is unlikely to profit. Some European cities that are seen as alternative financial centres to London will benefit from Brexit, but the impact on Europe in general might be negative, experts said. There is concern that the UK referendum result could weaken the EU and that problems that have long been brewing could bubble up to the surface.
'Europe is a very fragmented continent and in many countries widespread discontent has led to a shift to right-wing populism,' said Alexander Fischbaum, managing director, AF Advisory. 'Political, not just economic risks have to be integrated into investment strategies now and they will have an impact on transactions and business deals.'
Seen through a non-European investor's eyes, the Continent could look like a riskier proposition. 'More Asian money will go to the US and elsewhere and less will go to Europe,' said Handwerker. 'This will be one of the consequences of Brexit.'
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