The UK property market will no doubt be affected by the country’s decision to leave the EU. For HNW portfolios with a proportion of wealth held in this market, Brexit could create growth opportunities for both wealth managers and investors.
According to our 2015 Global Wealth Managers Survey, UK HNW clients allocate just 3% of their portfolios to property. While this is minimal compared to other assets, there is strong potential for this proportion to grow. Our data also shows that 61% of wealth managers expect demand for investment property advice to increase. Coupled with the market turmoil caused by Brexit, this will prompt many HNW clients to seek professional guidance.
Property is all about location and historically speaking, the value of London property sees higher growth rates than the rest of the country. According to Nationwide’s House Price Index, UK property prices have risen greatly over the past 20 years: from 1996 to 2007 prices in London rose 228.1% in real terms, while the national price rose 187.5%. And as of Q2 2016, London’s average house price was 51% higher than in 2007. Investors in London may choose to cash out on London real estate and seek opportunities elsewhere. While investing overseas has become less attractive due to the depreciation of the pound post-Brexit, UK HNW clients can turn to UK property outside of the capital. Those who have already allocated their assets in real estate outside London would welcome this contribution and enjoy capital trends.
Looking forward, paradoxically London could become a more attractive market for audiences around the world. The combination of lower prices and a weaker pound are benefits to overseas investors looking to acquire property in the UK. Recent changes in regulations, such as the 3% increase in stamp duty land tax for some properties brought about in April 2016, is another factor that affects the UK property market. The effects of Brexit create many possible scenarios for the market. Wealth managers can serve clients well by monitoring the current landscape and offering advice as demand for the investment property market continues to increase.
By Nicole Douglas, Wealth Management Analyst