Should you buy a UK property now after Brexit?
Following the shocking vote by the UK to leave the European Union, investors are reeling from the uncertainty that they are now faced with.
What's worse is that the situation doesn't seem to get better, as no one seems to want to take up the role of Prime Minister to administer the successful exit of UK.
For those who have seen the phenomenon fall of the British pound, one wonders if it is a good time to jump into the UK property market for some bargain-hunting.
On the day that the news of Brexit was announced, the British pound fell as much as 11 percent against the US dollar, touching US$1.3229 and registering a 31-year low. Against the local currency, the British pound is down 14.5 percent year-to-date.
With the political vacuum going on in the UK, it doesn't seem like much chance that investor sentiments will get better. With this in mind, experts say that there could be some opportunities in the UK property market.
Why Buy UK Property now?
UK property likely to be cheaper now
With the devaluation of the sterling, property valuations are lowered in local currency terms. This means that the Singapore dollar has a better purchasing power.
Other than the falling pound, other factors are likely to influence a drop in UK property prices. According to several news articles, sales volumes are expected to decrease by as much as 5 to 10 percent across the country, which will ultimately hit home prices.
UK Property remains an Asian favourite
Despite the Brexit and the underlying negative implications for its economy, some real estate analysts maintain that a period of uncertainty can create opportunities for investments.
This is especially so for Asian real-estate investors who loved investing in UK properties. According to a Knight Frank report, Singapore was the largest Asian investor in the UK real-estate market from June 2013-2015 with an investment amount of US$6.44 billion.
The fact is that even after the referendum. Asian investors are likely to continue buying UK properties since they offer stable and relatively attractive yields.
Interest rates might go lower
Against the backdrop of a weaker housing market, Bank of England's representative has said that they “will not hesitate to take any additional measures required” to reassure financial markets. These measures would likely be a cut in the interest rates – a measure often taken by central banks in times of crisis in order to boost lending.
If this happens, investors can expect lower interest rates to translate to cheaper home loans.
But before you jump in…
While there seem to be some bargain-hunting opportunities, the uncertainty that continues to persist in the UK remains and that can be a double-edged sword.
Investors would be wise to consider any investments carefully. This is especially true for property investments which require larger amounts of capital and are harder to dispose of when the time comes to sell.
Investors should also preferably have the holding power to sit through a likely downturn in the UK property market in order to ensure that their investments are worth the volatile ride ahead.