Mixed views on Brexit’s impact on UK economy

PETALING JAYA (June 24): The UK’s decision to leave the European Union (Brexit) is expected to have minimal impact on the country’s economy and property market, said Jupiter Securities Sdn Bhd head of research Pong Teng Siew.

“You will see market volatility for a short period — probably a few weeks — and everything will back to normal,” Pong told TheEdgeProperty.com.

However, a property industry analyst who declined to be named believes the impact will last for two years — the period of the UK’s transition out of the 28-country political and economic partnership.

“You will see volatility or corrections on the local property market during that period. [However], I think investors would be interested to look for opportunities because from a long-term perspective, the UK provides stable property market outlook,” he said.

He declined to review the impact of the Brexit on local developers which have exposure in the UK property market, such as Eco World Development Group Bhd (EcoWorld) and S P Setia Bhd.

“S P Setia has RM16 billion worth of gross development value (GDV) property development projects in the UK, while Eco World has £2 billion (RM11.89 billion). This incident [Brexit] is impacting all developers in term of sales. Malaysian developers will not be the exception,” he said.

S P Setia, Sime Darby Property Bhd and the Employees’ Provident Fund are redeveloping Battersea Power Station, an ambitious £8 billion (RM44 billion) regeneration project that will transform the iconic decommissioned power station into a mixed-use development.

Meanwhile, EcoWorld through its subsidiary Eco World International Bhd has three projects in the UK, namely Long City Island mixed-use development, Embassy Gardens and Wardian residential developments.

After the UK leaves the EU, the economy is expected to stabilise in the next three to six months, said Henry Butcher (Malaysia) Sdn Bhd chief operating officer Tang Chee Meng.

“It will be a period of adjustment for policies and trade agreements of various nations which will see investors taking a wait and see approach until everything stabilises,” he said.

“It’s hard to see what will take place, but I would advise investors who have yet to invest in any properties to have a wait-and-see approach until the economy stabilises. For those who have already invested in the UK, they just have to sit tight and weather through this volatile period,” he added.

According to Tang, many investors still have faith in the UK as a property investment market.

Knight Frank Malaysia managing director Sarkunan Subramaniam advised investors planning to purchase a property in UK to take a wait-and-see approach and observe the pound sterling’s movement as well as updates from the UK government before making any investment decision.

He reckoned the UK may experience two years of uncertainties in terms of policies, currency and economic environment after the Brexit.

Sarkunan said the short-term currency volatility may not be the main consideration for investment compared with changes in interest rate.

"For investors who have purchased property under the old regime, be aware that there might be some changes in interest rate," he told TheEdgeProperty.com.

He noted that the UK’s interest rate is currently ranging from 4% to 5%. Banks over there may increase borrowing rates slightly following future policy changes.

"However, the UK’s fundamentals remain strong with healthy economic growth. The turbulent situation is expected to stabilise after two or three quarters," he added.

Despite the Brexit vote increasing near-term risks facing the UK economy, the country has strong fundamentals, said Knight Frank chief economist James Roberts.

“Ultimately, it should be remembered that the UK is a country with 60 million wealthy consumers, and a high skill workforce. Consumer goods firms like Coca-Cola and BMW will always want to access a market this big. Skills based employers like PwC and Google will always want to access such a large pool of talented workers,” Roberts said in a report on Brexit.

He also foresees an interest rate cut by The Bank of England. Hence, for both residential and commercial property, there will be short-term market volatility.

“Potentially, and in selective instances, property pricing could come under pressure,” Roberts said.

However, Knight Frank head of UK on residential research Gráinne Gilmore said in the short to medium-term, the fundamental demand and supply dynamics in the market are unlikely to change, with a continued structural undersupply of homes across the country, underpinning pricing in some of the most desirable and best connected areas.

On the retail property sector, Knight Frank head of retail research Stephen Springham said a leave vote may have a surprisingly neutral effect on occupier markets.

“Retail property investment markets will be most affected by a ‘leave’ vote, albeit to no more or lesser degree than other commercial property sectors. The retail sector may well benefit from ‘bargain hunting’ investors from overseas, taking advantage of any fall in the value of sterling,” he said.

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