What Brexit means for Australian property prices

A global economy where we’re all connected

On 24 June 2016, the UK held a referendum on whether to stay or exit the EU. It was a close result, with 52% of the voters electing to leave the EU. And while Britain might seem like a world away, their decision has resulted in increased speculation in the property market. Here, we’ll go through some of the possibilities.

A global economy where we’re all connected

We live in an increasingly interconnected global economy. What happens on the other side of the world can have a real impact on what happens in Australia. The impact of Brexit on the UK’s financial markets was brutal. Billions was lost on the stock exchange as investors scrambled to put their money in less volatile options. But an unstable market, as reported in the Sydney Morning Herald, doesn’t necessarily mean a large impact on the global economy.

In fact, our market only fell by 3.2%, which was only down 1% on the previous week, and was likely to be a reflection of the punters who incorrectly predicted that the UK wouldn’t leave the EU. Our market has since recovered, with predictions that any Brexit impacts likely be minimal.

What does the short-term situation look like?

Now that the initial shock has worn off, it’s a good time to look at any short, medium or long-term implications with a clear head.

In the short-term, the Australian real estate market is unlikely to feel a direct impact.

Real estate is not as volatile, or as liquid, as the commodity or currency market. Property is not easily bought or sold, certainly not in the same speed as shares on the stock exchange. There is usually more planning and time involved. This lack of reactivity is a good thing when it comes to stability in property market pricing.

That doesn’t mean Australian real estate prices can’t be affected in the medium term, and there are things we can look at when considering market confidence. Things like seller appraisal requests and buyer enquiry numbers are the first things to change.

But a growing uncertainty in the UK and EU will likely make Australia even more attractive, especially among commercial property investors. Australia’s relative stability is already well accepted by overseas investors. And some analysts are reporting that while London was once a choice destination for Asian property investors, uncertainty there will likely result in them holding off on making too many property investment decisions.

Long-term vision

Increased instability and uncertainty in the aftermath of Brexit could lead to a global economic slump. Fall out in Australia should be minimal, however nothing is guaranteed, but maintaining confidence in the market will go a long way to help stabilise any long term implications.

Reports are that in the longer-term, Asian investors might start leaving the UK property markets, and see them look further to our markets for investment opportunities.

Smile Elite co-founder, Shayne Hutton, believes there are still fantastic buying opportunities at the top end of the market.

We are currently experiencing a lack of stock on the Northern Beaches and North Shore. This is upward pressure, created by the demand in the low to mid-price range properties, means there are still excellent buying propositions at the top end of the market due to the reduced number of buyers present in this space”.

But an economic slow-down in the UK, our 7th largest trading partner, doesn’t necessarily mean doom or gloom for our economy. Here, the RBA has monetary policy wriggle room to help alleviate any negative ramifications. A likely outcome would be an interest rates cut, which would help to stimulate growth and confidence.

Increased confusion and uncertainty surrounding the Brexit result and the global economy may cause a broader economic slump. Some economists expect the UK to enter a recession and the EU to see lower economic growth, which will in turn affect our level of trade with the region. Beyond this, the economic fallout for Australia should be fairly minimal. However, if the slowdown does hit harder than expected, an RBA interest rate cut could help to stimulate growth and encourage investment in bricks and mortar.

Pros of Brexit on the Australian Property Market:

  • Volatility in the equity markets will make it more attractive for investors to move their money into property, leading to an increase in demand.
  • With more international investors looking at Australian properties, values could increase.
  • More investment properties could mean a decrease in the cost of rent, an excellent outcome for renters.

Cons of Brexit on the Australian Property Market:

  • Devaluation of the international currency could make it more attractive to invest overseas.
  • A global slowdown could flow into the Australian economy, leading to instability and increased unemployment.
  • Increasing demand could make it harder for first homebuyers to enter the market.

Not everyone is filled with optimism

With the possibility of population growth and more expats returning to Australia, along with further RBA interest rate cuts, it could be a tough time for first homebuyers.
With more investors in the market boosting housing demand, buying a property could become more expensive. This will make it even harder for first homebuyers to get a foot in the door of the market.

Don’t forget the bigger picture

Whatever happens, it would be naive to assume the UK is solely responsible for the good or the bad in the property market, now or in the future.

The world is becoming increasingly fragmented, large trading partners are starting to experience slowing economic growth, and changes in government (here and overseas) can also affect Australian property prices.

At the end of the day, buying or selling a property should come down to your own unique set of circumstances – for one person it might be the best time to sell, while for someone else it’s the best time for them to buy.

Over to you

What are your short, medium or long-term property goals? Do you believe Brexit will be a positive influencer of the Australian property market?

Are you ready to sell your property?

If you’d like to arrange an obligation free appraisal, please give Smile Elite a call on 1300 712 712 or contact us

Disclaimer: The information here is provided on a general basis. You’re encouraged to consult with an expert who can consider your individual situation.

 

 

 

 

 

Uncategorized
Related Posts
July 2016 ATO changes

July 2016 ATO changes

June 10, 2016

Property Investment 101

Property Investment 101

September 18, 2017

What Brexit means for Australian property prices