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One of the worst hit areas of the stock market following the Brexit vote was the world of property. That encompasses shares in housebuilders, real estate investors, estate agents, builders’ merchants and flexible office providers.
The market is concerned about a drop in property prices, a slowdown in housing transactions and potential exodus of companies from commercial property.
Activity in the residential sales market had already eased in the months leading up to 23 June’s referendum and there could be worse to come following the result. Foxtons issued a profit warning on 27 June saying it no longer expected an upturn in the London property market.
Bank of America Merrill Lynch’s analysts have been reported as predicting a 10% price correction across the UK property market in the next year.
Housebuilders Barratt Developments , Berkeley, Persimmon and Taylor Wimpey initially saw between 30% and 40% wiped off the value of their shares on fears Brexit would hit house prices and affordability.
Richard Donnell, Insight Director at Hometrack, comments: ‘The decision to leave the EU will be most keenly felt in the London housing market which is fully valued and already facing headwinds.
‘History shows that external shocks can reduce sales volumes by as much as 20% with sales volumes already down over the last year. House price growth is already weak and running in low single digits in central London areas and modest price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity. Even a sharp fall in sterling is unlikely to attract overseas buyers in the near term.’
Commercial property
Brexit is bad news for commercial property, with a potential decline in occupancy which could hit valuations. Investment bank Liberum believes the sector could continue to underperform when the dust settles.
FTSE 100 giant British Land and Land Securities, owners of the towers in the City more commonly known as the Cheese-grater and the Walkie Talkie, have notable exposure. So do smaller players like Great Portland Estates and Derwent London.
British Land and Land Securities also have retail assets in central London, so the knock-on effect could spread through their portfolios if there are fewer workers in the City. Prices will have to fall to attract new clients, while some properties could lie empty.
Other areas of the market
Success stories such as flexible office provider Workspace could suffer from foreign firms deciding against a presence in the UK, or deteriorating economic conditions dissuading entrepreneurs from setting up, or expanding, small businesses.
More defensive areas of the property market, such as GP surgery and hospital owners, could prove more resilient investments – but are not risk free. Take a closer look at Primary Health Properties and Assura.
This article is provided by Shares Magazine. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters and does not guarantee the accuracy or completeness of the information in this article.
Investors acting on the information in this article do so at their own risk and AJ Bell Media Limited and its staff do not accept liability for losses suffered by investors as a result of their investment decisions. Shares is published by AJ Bell Media Limited part of AJ Bell.
