It is now almost exactly two years since the Brexit referendum (23rd June 2016) and coming up on 18 months since the triggering of Article 50 (28th March 2017), this means that there is now a reasonable amount of data on which to form a view of how Brexit has impacted the property market.
The property market before the Brexit referendum
With the benefit of hindsight, the UK housing market turned out to be something of a canary in a coalmine for the financial crisis of 2008. It took a sharp downturn in 2007 and needed an unusually-long five years, to get back to its pre-crash peak. This, of course, was against a backdrop of highly interesting times in the mortgage market since the events of 2008 caused lenders to ram hard on their lending brakes and regulators to start taking a keen interest in mortgage-lending practices.
What we now know as the Mortgage Market Review actually began in 2009, but it took until 2014 for it to be fully implemented. There is a case for viewing the MMR as the unofficial end to the period of chaos, since it gave lenders formal, regulatory clarity over what was expected of them and hence laid the ground for the market to carry on its standard, forward march on orderly terms, which it did, right up to the Brexit vote.
The property market in the aftermath of the Brexit referendum
It seems likely that the aftermath of the Brexit referendum will be etched into the memory of many people. Stock exchanges dropped, Sterling dropped and, of course, the housing market dropped. After the initial panic subsided, however, markets, and the humans behind them, began to settle and move on again.
The property market now
While the goings on in UK politics have provided plenty of fodder for political journalists, the present condition of the UK property market essentially reflects two fundamental contradictions. Firstly there is hesitancy over Brexit and, it has to be said, over recent changes to the buy-to-let market.
Secondly, there is the indisputable fact that the UK has an undersupply of property in general and residential property in particular and that there would either have to be a significant exodus of people from the UK or a significant number of houses built in a very short space of time (or some sort of combination of them both) for this imbalance to be addressed in any meaningful way.
The result is that overall; UK property continues to increase in value, albeit at a slower pace. This headline fact, however, skims over the fact that the UK property market’s is actually a collection of different markets with different dynamics and different degrees of exposure to Brexit. For example, the London residential market is currently stagnating (although not crashing), whereas the London commercial property market is still holding its own and both the residential and commercial markets in the north of England and other parts of the UK continue to do well. In short, while the eventual form Brexit takes is currently anyone’s guess, the need for housing in the UK is simply not going to go away and therefore neither will opportunities for property investors.
The REIT brand is recognised and trusted globally – so let’s use it as a force for good in creating vibrant places, writes Jenny Brown, of Grant Thornton.
Real Estate Investment Trusts (REITs) have continued to rise in popularity since they came into force in January 2007.
Within a month, nine of the UK’s largest listed property companies had converted to REIT status and, fast forward 10 years, there are now more than 70 UK REITs.
A REIT can offer significant benefits for investors and operators alike.
The brand is recognised and trusted globally, with most major economies having an equivalent regime.
There has been a marked increase in the number of REITs coming to the market in the last five to six years, with more than 30 new REITs listing on the London Stock Exchange and raising more than £12bn of equity.
Our latest report, REIT’s as a force for good, shows that many new REIT’s are now focusing on specialist sub-sectors, such as healthcare and social housing, which meet increasing demand from investors for both a financial return and an investment that focuses on property with a social value.
The potential for REITs to meet the need for new homes in the current climate is gaining increasing interest.
A sustained shortage of government funding has forced many housing associations to take on more debt in order to develop new homes.
With the government’s aim of building 300,000 new homes each year, REITs offer investors an opportunity to be part of a financial solution to help provide more social and affordable housing by partnering with housing associations in innovative ways.
A number of new REITs are already emerging that are focused on residential property and they have seen strong demand from investors.
REITs potentially offer investors better returns than they would achieve by investing directly in the properties themselves, as well as the security and liquidity of the REIT structure.
REITs are well suited to act as the owners of property assets with a social role, by working in partnership with operators.
The collaboration between the two can provide property management expertise to complement the expertise of either public or private operators.
The lesson we can take from looking at international markets is that the government can do a lot to help stimulate investment in this area through the tax system.
Australia is facing an affordable housing shortage so the government has introduced new tax concessions to encourage REITs to invest.
Similarly, in Canada, a number of REITs focused solely on residential property are supported by significant tax advantages and these REITs have delivered some of the highest returns across the stock market.
All those involved in the UK market need to continue to build and maintain effective partnerships between REITs, developers and operators and focus on collaborating effectively.
The combination of their different expertise is vital to supporting innovative high quality schemes with a social purpose.
That will only happen if we raise awareness of the potential for REITs to deliver long-term social benefits and educate both investors and operators about the risks and rewards of the structure.
These partnerships will be able to seize the significant opportunity for REITs to build on their success and become a force for good in creating vibrant places in which people can thrive by meeting the country’s housing needs.
Government can also help support these developments by looking at further reforms to the REIT regime to widen the permitted activities in which they can invest.
Source: Jenny Brown, chief not for profit operating officer, Grant Thornton UK