The Exit From Brexit: Property at home and abroad
Last Christmas Eve, more than four years after negotiations began with the European Union following the Brexit referendum in 2016, the UK government struck a deal which would govern future relations between the island nation and the 27-country continent.
While the deal is a welcome alternative from the potentially catastrophic ‘no deal’ scenario we were faced with in December 2020, it still very much comes with ‘strings attached’. Both the UK and the EU will face significant challenges over the coming months and years. As we know, some of these have already reared their ugly heads, whereas others are likely to become apparent in the longer-term.
So, what are the impacts of the deal on property at home and abroad? The answer differs for residential and commercial property, so let us take each in turn:
With a deal now in place, the consensus regarding the domestic residential property market is that it is unlikely to be heavily affected by Brexit in the short term. House prices may fall slightly if there are significant job losses, but any impacts of Brexit upon housing markets are much more likely to be dwarfed by those which arise from the UK’s economic recovery from the COVID-19 pandemic, and the widespread job uncertainty it has brought about.
As property sales have increased over the course of the last year and conveyancers (including EMW) continue to be very busy with new instructions, one could fairly speculate that if people are confident enough to purchase property during a global pandemic, they will also be confident to do so in a post-Brexit world. However, one could fairly speculate all day long about many things at present!
In contrast to the residential property market, the commercial property market is more likely to take a commercial (rather than legal) hit from both Brexit and the ongoing effects of the pandemic. A key difference between residential and commercial property markets is that while the former is largely governed by domestic mechanisms and processes, the latter is not as insulated from European and global market forces.
However, there is always a silver lining, and while the short-term effects upon commercial property could be noticeable (with capital value of property predicted to fall by up to 4% in the next two years), in the longer term, overall commercial property investment is expected to continue:
- The drop in the value of the UK pound has attracted overseas developers to invest in UK property.
- While investor spending on commercial property in Central London fell by £3.9 billion in 2020, the Evening Standard reported a ‘flurry of deals in the final quarter’.
- The global pandemic has accelerated the shift from high street to online retail as travel restrictions have prevented ‘traditional’ shopping ventures and home working has become a necessity.
- As a result, this has inevitably created a shortfall in demand for retail space, it has also generated huge growth for the warehouse and distribution centre sectors.
- Consequently, RICS have estimated a potential rental growth for industrial spaces as high as 35% in the coming years.
- With the sticky and uncertain Brexit negotiations finally behind the UK and vaccine rollouts providing future hope, investors are pressing on with their searches for opportunities to deploy capital.
- Some investors are already rethinking, redesigning and repurposing their portfolios by focusing upon more localised investment opportunities – for example, in lucrative regeneration projects in inner-city areas.
This article is a condensed version of a more comprehensive piece we produced on a number of aspects of life which the Brexit deal is likely to affect. To read the full version, click here.
So as not to leave you in the lurch, though, here are some highlights from our further Brexit deal analysis:
Since 1 January 2021, UK nationals looking to permanently relocate to the EU have become subject to the individual immigration rules of each member state. They will need to apply for a visa to demonstrate their right to reside and work.
New initiatives, including what almost sounds like a Roald Dahl-inspired ‘Golden Visa’ residency permit, have been introduced by countries such as Spain, Greece and Malta. The Golden Visa grants residency to UK citizens in return for a form of investment, such as property purchase, creating new jobs, or payment of a capital sum. The scheme can provide a route from permanent residency to full citizenship.
While the deal means UK nationals can now stay in an EU country visa-free for up to 90 days in a 180-day period, there are three immediately apparent downsides, both for leisure and business travellers:
- Firstly, EU pet passports are no longer valid.
- Secondly, in its current form, the deal prevents British filmmakers, technicians, models, musicians and performers from travelling around various EU countries for more than 90 days without a work permit.
In my opinion, some sort of compromise is likely to be reached on this; the restriction seems to create quite a ludicrous situation without real justification and we would be very surprised if it stands. Thankfully, the government have at least indicated that “the doors remain open” for further talks.
- Thirdly, the UK has withdrawn from the EU-wide Erasmus study abroad programme. Even though Boris Johnson has vowed to replace this with a UK own-brand alternative, it has quite rightly garnered widespread criticism as it flies in the face of efforts to tackle issues of mobility, integration and employment between EU countries that negotiations and the resulting deal have tried to preserve.
The deal has preserved tariff-free, quota free access to each other’s markets. Some might say this is another big win over a no-deal scenario, but on closer inspection, is it really all that?
When the UK remained inside the EU Customs Union, there was no need to demonstrate the origin of goods traded between EU countries. Further, no VAT or excise duties were payable. Now, ‘rules of origin’ regulations must be followed in the UK, which could mean separate customs duties are imposed even with a trade deal which preserves tariff and quote free access.
Alongside creating more administrative headaches and paperwork nightmares, these potential costs are being dubbed as a ‘hidden hard Brexit’, which would require bespoke solutions to avoid disruption to integrated supply chains and ultimately for consumers and shoppers. Naturally, this would incur further expenditure of time and money.
Of course, the hope is that these issues are short-term, but at present, there really is no set date for the start of the “new normal” for the UK.
Get in touch
For more information on this update, please contact Terence Ritchie.