He commented, ‘There has already been a sell-off in prime residential property and commercial property in the UK. That has probably been caused by the weak oil and commodity prices, and investors in countries such as Malaysia, the middle east and Russia who need the money. But I expect that those market conditions would be exacerbated if a Brexit vote were to happen, part of the appeal of the UK for those investors has been the strength of the currency, and the economy, to many overseas investors, the UK looked like something of a safe haven, that would be diminished in the event of brexit.’
Eric Moore, Manager of the Miton Income fund, disagreed with this analysis, commenting that investors from many emerging markets buy UK property so that their assets can be protected by the rule of law, in such a scenario a weaker investment performance would be unlikely to dent their ardour for UK property. He added that a weakness of sterling would make property cheaper for overseas buyers.
There may also be implications for the wider housing market, with Jones noting that sterling would ‘likely see a sharp decline’ in the aftermath of a vote to leave.
Such a deep decline in the value of the currency would import inflation from overseas. The traditional method open to central banks seeking to reverse a steep decline in a currency would be to put interest rates up. Jones believes that the Bank of England would delay an interest rate rise until, ‘it was sure that the inflation was here to stay’.
But if interest rates were to go up, Rob James, banks analyst at Old Mutual Global Investors told What Investment that the UK banking sector would suffer from mortgage holders being unable to make payments, and the price going up for aspiring house buyers.
Both of those factors would likely dent demand for UK property.
In terms of the assets one can buy to protect one’s portfolio from a possible Brexit, Jones commented that, ‘there would likely be a flight to safety, to assets such as gold and the shares of utility companies.’