UK real estate beginning to shake from Brexit earthquake
U.K. real estate is beginning to shake from the Brexit earthquake.
Investors are pulling money out of commercial property, and shares in housebuilding companies are falling fast.
Three big asset management firms have halted trading in real estate investment funds in the last 24 hours, the latest sign of turmoil since the U.K. voted to leave the European Union on June 23.
The funds are heavily exposed to offices and other prime commercial property that can’t be unloaded quickly enough when nervous investors want their money back.
Standard Life halted trading in its fund on Monday because of “exceptional market circumstances.” Aviva Investors followed Tuesday, suspending its fund due to a “lack of immediate liquidity.” M&G Investments said it suspended trading in M&G Property Portfolio because “investor redemptions have risen markedly” since the Brexit vote.
Markets responded swiftly, sending the pound to $1.30 against the dollar. It has fallen 13% since the Brexit vote. Shares in building companies were also slammed, with Barratt Developments, Taylor Wimpey (TWODF) and Berkeley Group falling between 6% and 9% in London.
All three have seen their stock price plummet by more than 30% since the U.K. referendum.
Analysts say the tremors in the property sector are being fueled by huge uncertainty about the economy ahead of Britain’s divorce from Europe, and the possibility that foreign investors and companies might abandon the U.K.
It’s a remarkable shift in sentiment for a market that once appeared unstoppable. In the wake of the global financial crisis, U.K. real estate stabilized quickly. Then, ultra-low interest rates and a flood of foreign money pushed prices through the roof, particularly in London.
The government, worried that homes were becoming unaffordable, recently slapped new taxes on transactions in an effort to curb prices. But those measures could turn out to be small potatoes compared to Brexit.
“Brexit may very well bring an end to the trend of real estate asset appreciation in the U.K., and London in particular, over the past several years,” said S&P Global Ratings analyst Marie-Aude Vialle.
