What 'Brexit' means for the Australian property market
What is Brexit?
A non-binding referendum which asked British voters the question “Should the United Kingdom remain a member of the European Union or leave the European Union?”
What was the result?
More than 30 million voters turned out with 52% voting to leave the EU and 48% voting to remain in the EU.
Why has the result caused such coverage?
The winning vote to leave the EU was an unexpected shock. The vast majority of pollsters, politicians, economists, betting agencies, share markets and media outlets all widely expected the country to vote to remain part of the EU. This surprise result sent shock waves through investment markets across the globe with many equity markets, including Australia’s, recording extensive falls after the vote.
What does this mean for Australian property markets?
In the short term, Brexit will not have a direct impact on Australian property. It’s the potential longer term economic ramifications that affect our trade relationship with the UK that will affect the property demand, supply and prices.
Short to medium term
This result will have very little effect on our property markets over the next week. Real estate is not as volatile or liquid as equity, currency or commodity markets. This means they cannot be “sold off” or react at the same speed. The key indicators to watch in the short term are buyer enquiry volumes and property appraisal numbers, these will tell us if market confidence has been affected.
Brexit adds sovereign, or crown risk, to inward investment into the UK, affecting the amount of capital, the type of investors and level of return expected. While not good for the UK, this is a positive for Australia because it makes investment here more attractive for large foreign developers and institutions as well as high net worth private buyers looking to purchase residential property. London is close to top of the list for Chinese real estate buyers, so the referendum result will make Australian property look more stable and less risky to those weighing up options.
Commercial and residential real estate may also see a lift in demand and enquiry from domestic investors and those that manage a self-managed super funds. These buyers will now evaluate their investment portfolios and in light of the equity market volatility may see real estate a more stable asset class.
Increased confusion and uncertainty surrounding what effects the Brexit result will have on the global economy may cause a broader economic slump. Some economists expect the UK to enter a recession and the EU to see lower economic growth which will in turn effect our level of trade with the region. Beyond this the economic fall out for Australia should be fairly minimal. However, if the slowdown does hit harder than expected the RBA does have room to move should it need to cut interest rates to stimulate growth.
For Australia, the Brexit result is all about confidence and sentiment. Buying, selling, investing and consuming are all driven by confidence. The more confident you are with the security of your own income and the destination into which you want to invest, the more you are likely to do so. Therefore, the short term may see investors hold off investing anywhere until things are more certain, however, at the end of the day this result makes Australia a more attractive, secure and less risky destination for global capital.
Potential positives and negatives for Australian property
· Increased buyer demand from investors seeking to exit the volatile equity markets and move into the safety of bricks and mortar.
· Owners of SMSF’s will look to de-risk their portfolios from equities into commercial & residential property.
· Australia will be perceived as a less risky, more stable, secure place for foreigners to invest in.
· Off-the-plan sales increase from offshore buyers as global investors look outside the EU and the UK.
· Global economic downturn may hit employment and Australian economy.
· The devaluation of the EU and British Pound makes investing in Europe and Britain more attractive buyers.
· Increased settlement risk for new projects that are currently under construction that have a high level of units sold to foreign buyers.
· New residential developments don’t go ahead because investors see buying off the plan as inherently riskier than existing property.