While the forthcoming referendum about the U.K.’s continued membership of the European Union should be a straightforward yes/no situation, infighting amongst UK factions is having an impact in investment markets. Despite promises that the various groups would not “fight dirty” there are rumours, counter rumours and blatant untruths doing the rounds. What impact will this have upon short to medium term investor sentiment?
Uncertainty, uncertainty, uncertainty
As we have touched on before, if investment markets know the best case scenario and the worst-case scenario then they can factor in the risk elements to any asset pricing model. This has been shown time and time again when markets have responded fairly quickly to find a level after a change in regulations, sentiment, etc. However, the worst possible position for any investor and any investment market is uncertainty over the short, medium and longer term.
Sitting on the sidelines
It is becoming more apparent that some investors are more comfortable sitting on the sidelines and watching the European Union membership referendum develop. Historically the UK property market has been very well supported by buyers who are more than happy to buy on asset price dips and short-term uncertainty. If however, as we are seeing in some parts of the UK, investors are starting to move to the sidelines then this would reduce demand and any upward pressure on prices.
Banking a profit
What better moment to bank a profit than when markets appear to be stagnating, investor confidence is lukewarm to say the least and the markets await news of the European Union referendum? So, if we see a reduction in demand in the short to medium term and some successful investors decide to bank profits in these uncertain times, where does this leave the property market in the short term?
Is there short-term downside?
Even if we take out the European Union referendum, with a potential for to go either way, with a reduction in demand and some investors looking to sell, where does this leave the market in the short term? At this moment in time it is difficult to see any major upside in the UK property market until the European Union referendum has been decided. We saw this with the Scottish referendum where investors sat on the sidelines, prices drifted lower and volumes fell sharply but we also saw it took a good two years before investor confidence recovered.
Is this a fair fight?
To the person on the street the forthcoming European Union referendum is something of a mystery with those for and against continued membership releasing often misleading and incomplete statements and statistics. All we need to know is the impact on the UK economy, investment markets and indeed the lives of the general public if we stay in or if we leave.
While this is all conjecture at the moment the information we have received so far is extremely biased depending upon which groups you speak to. This is not helping investor confidence, investor sentiment and indeed it is difficult to see any real recovery until we have a definitive answer after the referendum. Only then will investment markets be able to reposition themselves and re-evaluate the situation taking into account the decision of the UK public.