Property developers put Brexit clauses into new-build contracts
The UK’s property market often fluctuates on the whim of the international markets – a drop in the price of oil saw the number of Middle East investors fall, while sharp volatility in the financial markets encouraged greater investment in safe-haven Prime London property.
Now it’s the turn of the UK’s EU referendum on 23 June to wield power over UK property transactions, and prime London purchases in particular.
Estate agent Best Gapp, which is based in the exclusive Belgravia area of central London, says that while enquiries have remained around typical levels for this time of year, property purchasers appear slow to sign on the dotted line and finalise the deal.
Overseas investors seem particularly cautious, with a property deal facilitator based in Dubai reporting that while purchasers are still interested in London property deals, little is being agreed in the run up to the referendum.
“At the moment it seems clear people are a bit more sceptical about making an investment today because of the threat of Brexit,” he says.
Indeed, investors are considering exactly what the potential impact a UK exit from the European Union could have on their investment and if there’s a way they can exit the deal if the vote doesn’t go the way they want, particularly if the pound slumps in value as experts are anticipating.
This has led to the introduction of a so-called Brexit Clause into some contracts, allowing investors to leave the agreement and have their funds returned to them if the UK votes to leave the EU.
The marketing team behind a new 41-storey residential development in Elephant & Castle – on the southern boundary of central London – has gone one-step further.
They are allowing anyone who puts down a deposit on an off-plan property in the development to exit the agreement and have their money returned to them after the vote regardless of what the result is.
Other factors could also affect the London property market, says central London estate agent LDG.
While the value of the pound could sink if the UK votes to leave the EU, the run up to the US election in November is also causing jitters in some financial markets, as did the recent report that showed job creation in the US – the world’s largest economy – was at a five-year low.
Taken together, this combination of economic and political uncertainty is working to reduce the number of property transactions in the UK, and central London in particular.
Peach Properties, an estate agent based in the popular East London areas of Shoreditch and Bow, says it has not seen the value of homes slip yet, but that could change if the UK votes Brexit.
In fact, mortgage lender Halifax reports that the annual pace of house price growth across the UK was 9.2% in May, unchanged from April’s figures. Meanwhile, a recent study from the lender revealed property prices per square metre over the past 20 years have risen 432% in Greater London compared with a 251% national average increase.
If Britain votes to leave the EU, the full effect of this move on property prices will not be known until after the two years it takes to negotiate the country’s exit.
But the property market in central London, and other areas of the country, thrives on economic confidence. And that could well take a knock in the weeks and months after 23 June.