How will Brexit affect property prices in Nine Elms?18 March 2016
Eurosceptics argue that if Britain votes to end its 43-year membership of the EU on 23 June it will cut immigration, save the taxpayer billions of pounds and free us from an economic burden.
On the other hand, Europhiles say if the much talked about Brexit does take place it would cause the stock market to fall through the floor and an economic recession, with losses to GDP calculated by the Centre for Economic Performance at up to 9.5% – worse than the 2008 financial crisis that saw property prices fall by more than 13%.
As a leading London estate agent with a branch in the capital’s new diplomatic quarter, Garton Jones Nine Elms takes a similar stance to the Queen.
Buckingham Palace insists Her Majesty is “politically neutral” over the EU referendum.
However, many of our vendors, buyers, landlords and tenants have asked about the effect the result of the referendum could have on property values in the UK, and Nine Elms in particular.
A recent online survey found that 55% of people believe leaving the EU would have an impact on the value of their home, with 34% thinking it could increase property prices and 21% fearing it could lead to lower sale prices.
But it’s difficult to say which point of view will prove correct.
Only one member state has ever left the 28-nation EU since Belgium, France, Italy, Luxembourg, the Netherlands and West Germany established the European Economic Community in 1958.
As a part of Denmark, Greenland joined the EEC in 1973 – the same year the UK became a member after Edward Heath’s Conservative government passed the European Communities Act in 1972.
After home rule for Greenland began in 1979, the territory voted to leave the EEC in 1982 and its exit was agreed in 1985 following intense negotiations over fishing rights that resulted in the Greenland Treaty of 1984.
But as a member of the Association of the Overseas Countries and Territories of the European Union, Greenland remains subject to EU treaties.
Britain could leave the EU in a single day by repealing the European Communities Act 1972 and its numerous modifications and amendments through a single clause bill being voted through Westminster.
However, Article 50 of the 2009 Lisbon Treaty – the document that governs membership of the EU – states that once a country has formally announced it wants to leave, it needs to negotiate with the 27 other member states about the terms of its withdrawal.
The Lisbon Treaty allows member states up to two years to come to an exit agreement or face leaving without securing a free trade agreement or any other benefits EU membership brings.
A government report on the process for withdrawing from the EU, which was released in February, acknowledges that “uncertainty during the negotiating period could have an impact on financial markets, investment and the value of the pound, and as a consequence on the wider economy and jobs”.
But because Article 50 of the Lisbon Treaty has never been put to the test, we can only speculate how bad this would be.
The weakening value of the pound, caused in most part by speculation over Brexit, is already taking place.
In March 2015, £1 was worth over €1.41. Today, it’s worth closer to €1.20.
While the popular newspaper bemoan the fact that this means holidays in the Eurozone will cost Britons more, it is worth noting that it also makes property in London significantly less expensive for overseas investors.
It is equally clear that – in macroeconomic terms, at least – EU membership is virtually irrelevant for the UK.
This is because we are both an economic powerhouse and the value of sterling is not tied to the euro, according to Financial Times columnist Wolfgang.
Macroeconomics examines the wider factors that affect a country’s prosperity, such as employment rates, national income, growth rates, GDP, inflation and price levels.
Münchau goes on to explain that the EU budget is tiny when compared with the UK government’s other fixed costs and free trade and free capital movement is highly likely to continue whether Britain leaves the EU or not.
It’s not unreasonable to say that the greatest threat to property values that Brexit poses is the two-year period Britain would need to negotiate the terms of its departure from the EU.
Those 24 months would create a climate of uncertainty, which could well have a dampening effect on the London property market.
Buoyant property market
It is equally possible, however, that in sought-after areas of London – including Nine Elms and Westminster – investors from the Eurozone will keep the property market buoyant as they seek to take advantage of the weak pound.
Nor will Brexit alter the fact that London suffers from a desperate shortage of houses and Nine Elms will continue to develop into an economic and cultural hub.
The £620m US embassy is still on target to open next year when demand for luxury properties in Nine Elms is likely to reach a peak – whether Brexit negotiations are underway or not.
How much is your property worth? Contact the valuations team at Garton Jones Nine Elms for an up to date valuation of your home’s rental and sales value.
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