Real estate team comments on Brexit

30 Jun 2016

The Brexit vote – What’s new?

We have been here before with the same pack of cards but it is just that at the moment they have been shuffled differently!

At Collyer Bristow we have seen entering into the Common Market (EU), we’ve seen wars, tsunamis, hurricanes, financial collapse, sterling collapse and now this vote that many thought would never actually come to fruition.

We have a wealth and depth of experience and maturity here and are able to help and advise should you want to discuss matters with us.

Effect on housebuilders

We are told that UK house builders lost nearly 40% of their value since the referendum results, although they have clawed back some of these losses recently.  About £8 billion was lost off the market capitalisation of the 4 biggest house builders – Taylor Wimpey, Persimmon, Barrett and Berkeley Homes.

At the same time, Redrow has reported average selling prices are up and that profit before tax is likely to be above expectations notwithstanding the referendum.

A poll of RICS surveyors say they expect prices to fall over the next 3 months, but they expect an increase overall over the next 12 months.

Who is to be believed? Are UK house builders facing Armageddon?

The fundamentals of the UK property remain the same.  Demand outstrips supply.

The UK needs to build over 250,000 homes a year.  It is hardly achieving half of this target.  At the current rate of construction, the housing shortfall is estimated to reach more than 700,000 in London in just 16 years.

Constraints on supply

Some constraints on supply, which applied during the financial crisis such as planning permission constraints, are not as pronounced as previously.

The availability of construction workers and materials is however more likely to be a concern this time around.

If Brexit operates as a brake on housing inflation over the longer term, this may not be a bad thing.  Perhaps it will help make the dream of housing ownership a reality for those now struggling to get on the housing ladder.

Availability of funding

The main question for developers is whether funding will dry up. Inevitably there will be decreased funding available but this is not a global liquidity crisis like the post-Lehman crash.  The industry no longer depends exclusively on mainstream banks.  Alternative sources of funding have made a difference.  Government initiatives to such as Help to Buy make it a bit easier for buyers to fund purchases. 

How can we help?

We have already advised a number of international clients and law firms on the implications of Brexit and what it will mean in Central London and in the wider commercial property market.

We have advised a number of clients and mortgage institutional lenders in relation to matters concerning the implications of what happened on the day after the Referendum.

One of the main concerns with everyone is of course the uncertainty and it is our belief that it is in the interest of all member states within the EU to deal with that uncertainty as soon as possible.  It is obviously in the UK’s best interests to do so.

Whilst there is uncertainty, no one can be sure of the underlying value of assets they wish to acquire or sell. Any negotiations that took place prior to the date of the Referendum will have to be looked at under close scrutiny.  Has anything changed in relation to ‘done deals’?

We have had cases of client’s agreeing a rent for commercial property in the City for leases for terms in excess of 10 years with upward-only rent reviews based on rents that were negotiated prior to 23 June. Is this sensible?

Are there other ways of dealing with this?

These are the sorts of questions that we want to be asked or if we are not asked we will ask of you.

We are here to help.  Of course we can deal with the nuts and bolts of any transaction but if you want some of the additional input that we are able to offer please telephone us and ask any one of your partners or contacts here at Collyer Bristow. 

We are only too happy to help and to work with you through the uncertainty of the coming months.

For more information please contact Paul Henson, Alex O'Connor or John Rochman.

Additional information