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06 December, 2016
Before June's referendum, a lot of investors were simply not sure what to make of the possibility of Brexit. Since the public voted for it to actually take place, investor reactions have been mixed to say the least. Many, however, have been abandoning the UK in favour of other markets before the perceived disaster hits. This raises the question of whether this is the right response to Brexit, or whether it is an overreaction that could leave these investors missing out on a very real opportunity?
Whilst the referendum result may have sparked a lot of uncertainty about the UK's economy over the next few years, which of course includes the property market, it has also made one or two things more certain than ever. In particular, it has made it certain that interest rates will remain low for a good while yet, and most likely extended the period before a rate rise finally takes place. Indeed, where a near-future rise was predicted not so long ago, now the base rate has experienced the first cut since 2009 and may be cut again or even go negative.
This has a big impact on the situation at hand. For a start, it makes property a potentially more attractive sector to invest in since it means that yields on gilts are not likely to be great, and may even become negative. It certainly means that the UK property sector warrants another look with profit in mind, and one that goes into a little more depth than the raw “Brexit is bad” reaction that many property investors have had.
Pretty much all financial markets within the UK, and many throughout the rest of Europe and beyond, suffered a shock as a result of the vote to leave the EU. While Real Estate Investment Trusts (REITs) have not been immune to the turmoil by any stretch, many experts believe that the shock they suffered was disproportionate, and in particular point to the fact that this means the share value of many trusts is now significantly below the actual capital value of the stock they hold. On the contrary, a number of analysts have said, REITs are much better-placed to weather any financial storms that Brexit may bring. This, combined with the relatively strong yields of property in an otherwise low-yielding climate, makes property an asset class worth serious consideration rather than one to abandon.
To some extent, these positives may well prove to be self-sustaining and even self-amplifying. Ultimately, investors tend to go whether the yields are and when yields in the safest markets are seriously pinched then investors as a group become more comfortable with stepping outside of those markets for better returns. With property set to become a decided leader in terms of yields as markets continue to feel the pinch, most forecasters are predicting continued, healthy appetite for property in spite of the minor exodus taking place currently. This will continue to prop up yields and, while volatility is undeniably on the cards, will help keep property more stable than it would otherwise be.
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