As the Brexit campaign for the UK to exit the European Union continues to gather pace, with daylight between the Remain and Brexit forecast voting figures, how might this impact the European property market? There are now serious concerns that a victory for the Brexit campaign could see the breakup of Europe and the one market approach which takes in the European property market.
It may be a little too soon to call the end of the European Union but it does look as though there will need to be serious concessions to keep this project moving forward. Many forget that the UK never adopted the euro so in reality the UK is not as closely tied to Europe and the European Union as some believe. So, would a UK exit from the EU have any impact upon the European property market?
Uncertainty breeds uncertainty
We only need to look at the UK property market at the moment to see investors sitting on the sidelines waiting to see what happens. We also experienced this when the Scottish government called the Scottish independence referendum and two years later we are only now starting to see any meaningful recovery in Scottish property prices. The problem with the European Union issue, and continued membership by the UK, is that nobody has any clue how this situation will pan out whether the UK stays or whether the UK leaves.
However, what we do know is that uncertainty breeds yet more uncertainty in the investment markets and very quickly property hotspot premiums have disappeared across the UK. Sentiment plays a major role in any investment market and at this moment in time we can best describe sentiment in UK market as “subdued”.
Financial transactions
There is already speculation that the European Union is planning to introduce a tax on financial transactions within the European Union. While this will be a relatively modest percentage figure it could potentially bring in an enormous income for the EU because of the cumulative transaction figures across European investment markets. So, whatever happens with the UK it looks as though it will become more expensive to deal in European real estate as the EU authorities look to feather their own nest at the expense of investors.
It is difficult to justify any additional tax on financial transactions within Europe especially when you bear in mind that member states already have their own tax regimes in place. We only need to look at the UK real estate market to see the ever-growing cost of investing, due to additional taxation which the authorities are using to fill budget black holes left exposed after the 2008 worldwide downturn.
Freedom of movement within Europe
Freedom of movement for European citizens has helped to fuel an array of property markets around the world with the UK attracting a significant number of European visitors. There is no doubt that immigration has placed more pressure on the UK property market which has pushed prices and rental values beyond the means of many looking to climb onto the property ladder. You could argue that an exit from the EU could reduce the pressure on the UK property market allowing household incomes to at least start and reduce the stretched affordability factor.
However, the likelihood is that even if the UK Brexit campaign is successful the EU project is so deeply entrenched across all member states that it simply cannot fail and resetting the relationship and the financial integration of recent years would be a minefield. It will be interesting to see whether the UK electorate decide to leave the EU and whether indeed the UK property market, which has been one of the best performing in the world, would benefit from this newfound “independence”.