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The impact of Brexit on overseas property investment

 

 

 

Background

 

The referendum vote in 2016 caused shockwaves across the Globe with the Brexit result, ending a 43 year relationship with Europe.

 

But how will the residential property market in the United Kingdom be seen to overseas investors? For example, in Hong Kong, property investment in the United Kingdom has always been an attractive option. How has Brexit impacted this choice, and what further effects can it have?

 

Why the UK?

 

Hong Kong shares an official language, a lack of travel and financial barriers, and a historical and cultural connection with the United Kingdom, all of which make UK property attractive to Hongkongers.

 

For the many Hong Kong residents with British or British National Overseas passport, the convenience of access and residence is an additional reason to find a place to live in the UK, whether permanently or temporarily. Retirees with relatives already in the UK and students in UK universities alike have good reasons to deal in property there.

 

Additionally, the UK has a particularly strong reputation for economic stability and established rule of law, reducing the risks of investment; and London in particular is a global financial centre and hub of dynamic redevelopment, providing a property market where investors can expect strong returns either from rental or resale.

 

Hong Kong’s own active and prominent real estate market also reflects the scarcity and exorbitant value of land in the Special Administrative Region. Many Hongkongers are well aware of the opportunities for profit in dealing with real estate and the UK is a suitable jurisdiction in which to invest in property for all these reasons.

 

The Chinese Connection


Amongst its many economic roles, Hong Kong is a conduit between mainland China and the world at large. The relative ease of moving capital and converting renminbi into foreign currency in Hong Kong has made it indispensable in facilitating overseas investment, such as to Europe and the UK, especially given China’s recent capital control policies.

 

With domestic economic growth slowing and enormous amounts of Chinese capital eager to be moved, the advantages of the United Kingdom are more important than ever for investors appraising the situation from Hong Kong.

 

How does Brexit change this equation?


Following the referendum result, the pound dropped to levels not seen since 1985. The weakness of the pound can provide benefits for overseas investors opening up more investment from the global markets. With buyers exercising caution, they may put purchases on hold with renting providing advantageous leading to landlords using the opportunity to invest. Furthermore, if, as predicted, house prices start to soften this may be good news for flat owners, particularly those looking to extend their lease. Now may be a good time to make a lease extension claim as the cost of the claim is likely to decrease by the end of negotiations. The fall in house prices is however expected to be short term with forecasters predicting small rises in 2017/2018 therefore prudent flat owners should consider their position and look into serving notice sooner rather than later.

 

The fall in the value of the Pound has attracted a fresh wave of capital from both Hong Kong and China, the immediate decrease in the cost of investment outweighing future uncertainties. Leaving the EU may also allow the UK to remove legal limitations on foreign investment, making it even easier to invest. However, the impact of Brexit on the UK economy as a whole is likely to produce wider, more complex incentives for investors. In the medium term, the Brexit process has harmed and will continue to harm the UK’s reputation for financial stability as its political and economic roadmap continues to be charted. These uncertainties contend against the United Kingdom’s longstanding reputation as a well-developed global financial center and other traditional reasons that Hongkongers find the UK attractive.

 

In the long term, Britain’s disengagement from the European Union also signals the end of many ancillary benefits and opportunities from living in the country. All such factors will impact confidence in property investment, albeit as part of the watch on the UK’s general economic performance.

 

The Other Special Relationship?


It’s unlikely that Brexit will slow the flow of Chinese capital through Hong Kong and into UK real estate. The outgoing capital driven by China’s own economy and policies will continue to search for safer returns for their value, as will Chinese individuals using Hong Kong as a springboard to seek overseas residences.

 

There is also the possibility that as an alternative to the rest of Europe, the UK may seek to deepen its economic engagement with China, attracting more Chinese investment. One may see Hong Kong continue to serve as a conduit for Chinese funds independent of the UK’s future economic performance.

 

Uncertain Times


Determining the impact of Brexit on property investment is inextricable as its effects on the UK economy remain contingent on the actual shape it has yet to take. However, as long as the UK’s fundamentals are not disturbed, its real estate will remain attractive from Hong Kong’s perspective.

 

 

 

Yashmin Mistry is Partner and Property Practice Group Leader at JPC Law.

For further information and advice on leasehold law please contact her:

E: ymistry@jpclaw.co.uk

T: 020 7644 7294

or

Emily Lamb, Partner at P. C. Woo & Co. 

E: el@pcwoo.com.hk

T: (852)2522 6304

 

General Enquiries:

E: enquiries@jpclaw.co.uk

T: 020 7625 4424

 

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