Brexit will not dull demand for London realty, say UBS officials

Tourism and student housing-related property still luring global investors to Britain

PUBLISHED : Tuesday, 26 July, 2016, 4:17pm
UPDATED : Wednesday, 27 July, 2016, 7:15pm

Despite a panic that triggered gating of British real estate funds following Britain’s decision to leave the EU, the chance for a replay of the 2008 global financial crisis remains slim, with tourism-and student housing-related properties in the country still luring global investors.

“The difference between what happened this time and the global financial crisis is the leverage level. The leverage level this time is much lower than in 2008,”said Charlene Huang, director & co-head Asia-Pacific of Global Multi-Managers, the global real estate arm of UBS Asset Management.

“What we saw after 2007... a lot of forced selling of assets was driven by lenders as the assets were too leveraged. We are not going to see that this time round,” the Singapore-based money manager said.

Weeks after the Brexit vote, several British property funds targeting retail investors, who scrambled to withdraw their money amid jitters, cashed out of their London real estate at a discount.

Paul Guest, London-based lead strategist, global real estate with UBS Asset Management said that the window for such forced sales would be short, perhaps just a couple of months, as funds have to meet redemption targets. In addition, it would lower the overall valuation of British commercial property, he said.

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While much of that uncertainty has been mitigated after Theresa May took over as the new prime minister, Guest felt that the next focal point of attention would be on London’s negotiations with Brussels next year over its exit from the EU.

Experts have weighed the question of whether financial institutions will move out of the British capital as banks there are likely to lose their “financial passport” privileges with a free access to the single market.

“The sector that is the most at risk here is the financial sector because there are big investment banks based in London with staff there to operate across the Europe. That is all based on the fact that London is a part of the EU,”Guest said.

Huang said she would have to “wait and see,” given various political economic interests of the European countries to participate in the negotiations.

“There are a lot of separatists, there are a lot of independence movements, they (the negotiating countries) may be under much pressure to not to be too cooperative ,” Huang said.

“So the biggest area of concern is the City of London. As an investor, if you want to be safe that’s where you don’t want to be in the short term,” Guest added.

But Guest believed when the valuation falls, bargain hunting opportunities may surface in select British markets.

“You might want to be dominant shopping centres. You might want to be in anything tourism related -– tourists come to London because things are cheaper,” Guest said.

Student housing could also yield juicy income, Guest reckoned, with international students, a big chunk of whom could benefit from a softening pound, accounting for the majority of the accommodation demand.

The story has been corrected to include the words ‘in the short term’ in the 12th paragraph