In this guest piece, Yaroslava Tkalich, chief marketing officer of Smartlands - a global investment platform for the tokenization of real economy assets by issuing security tokens - discusses whether Brexit will have a major impact on the UK real estate market and whether investors should be worried.
The short answer is no. Going long, however, we'd have to deal with uncertainties that have arisen due to inevitable changes the UK economy at large is bound to go through. Particular to the real estate sector, those uncertainties will bring us lack of clarity on the volume of future transactions, ways to revitalise the stagnant housing market and address the falling share prices in the rental sector.
From the development and investment standpoint, June 2016 showed us the classic indicators of an overheated market with bidding stampedes and land acquisitions at insane prices. It seemed like raining loans, even with an average loan-to-value rising way above 60%.
The Vote on June 23 poured a bucket of ice-cold water on the market. Commercial rental growth froze, house prices in virtually all of the south, including the Greater London area, have risen by a little over 4% - less than one-fifth of the previous three years combined.
Well, turns out cooling off the overheated markets is a good thing. Lenders yearn for a level playing field during the two-year funding cycle of a new development (ideally, driven by borrower-created value as opposed to artificially-inflated market valuations), and deservedly so because prices can't be on an upswing all the time.
The Brexit-consumed government wasn't helping, but, ironically, in the case of the real estate market, the lack of clear government policy of handling turmoil is welcomed.
In the two years before the vote, we saw two stamp duty changes heavily affect the housing market, the repercussions of which will hound us for years to come. The changes to landlord tax relief signified further interference with the buy-to-let market on the part of the government. Whether you are a mere landowner, house seller or a heavy-hitting developer - all sector participants found themselves between the hammer and the anvil.
Market watchers sang in unison: the real estate sector was predicted to be the biggest casualty of the Brexit vote. The reality, however, surprised everybody: with flattened values and a lack of decisive action from the political class, the sector stands to win big.
Essentially, the market has taken a three-year break, which is now coming to an end with highly positive indicators in such auspicious segments as student accommodation, the private renter sector, and retirement living.
Granted, the British real estate market remains far from future-proofed with such long-term consequences of Brexit as the looming damage to the economy as a whole, resulting in job losses, disruption of trade routes, and overall diminishing quality of life for many.
However, by some quirk of fate, Brexit provides us with a market free of outside interference and endowed with sensible valuations along with a climate welcoming to investors, developers, equity issuers, and lenders alike.
Speaking of the welcoming climate. As the UK’s financial watchdog FCA recognised digital assets as property, the investment market became even more friendly towards the brand new form of investing – tokenised real estate. The approach of digitalising property shares and selling them in fractions facilitates liquidity and is expected to attract a global pool of capital from investors worldwide.
January 31 will signify the beginning of the period of relative stability given the course the current cabinet is on, so it's no longer 'do or die' that shook the global economy and international politics for the last three years. It is done.
*Yaroslava Tkalich is chief marketing officer at Smartlands, a digital securities issuance and investment platform