As Brexit draws closer, there are many predictions about the real estate market in 2019 and beyond, revealing the complicated state of affairs that may occur due to the effects of Brexit on the European real estate market. The changes in the political sphere of the UK (and across Europe) including the extension of the Brexit period from March 29 to April 12 and now to October 31, has done nothing to alleviate the fears of investors and analysts but only succeeded in increasing the uncertainty in the real estate market.
According to the Investment Property Forum, through a consensus forecast which was recently published, several investors in the UK property market are bracing themselves for lower returns on investments and more negative capital values. Professionals believe that a large number of businesses will relocate their operations from the UK to the rest of continental Europe leading to a loss of investments in real estate and in the economy after Brexit. The study indicates that there is a predicted fall in total returns from 6.2% to about 3% between 2018 and 2019. This is due to the reduction in capital values expected across all fields excluding the industrial sector which is poised to increase by about 2.7%.
Industry experts believe that the plummeting real estate industry would however not be so bleak as Capital Economics (CE) anticipate that this drop would remain within the range of 5% to 9% for the next two years. Although, contrary to the 9% reduction predicted by CE, the Bank of England using a stress test analysis considering the worst possible outcomes of Brexit on real estate (based on the banking system), stated that the capital value of commercial properties in the UK may experience a drastic fall of about 27% within the next five years. This, in their opinion, is the possible scenario if there is a “disruptive” Brexit which seems to present a better outcome than the anticipated reduction of about 48% under a “disorderly” Brexit. Generally, it is quite difficult for economists, analysts and industry experts to make specific predictions as the possibilities vary largely depending on the terms upon which the UK exits the EU.
Due to the uncertainty and stated risks within the UK real estate market, a number of investors and large companies are looking to divert their operations to other commercial cities in Europe. The aim of such large institutions is to take advantage of strategic locations with easy access to resources, skilled labour and high level infrastructure as the Eurozone is considered to be a safer investment option than the UK after accounting for the effect of Brexit on the real estate industry and the entire economy. Major cities across continental Europe are expected to benefit from the effect of Brexit on real estate and other industries as the divestment from London to Paris, Frankfurt and Amsterdam is quite feasible. This renewed interest from companies and real estate investors may explain the increase in property prices observed in other cities like Geneva in Switzerland, the independent state of Monaco and cities in France including Lyon and Cannes where property prices have increased significantly in 2019. Similarly, according to PWC’s report on Emerging Trends in Real Estate – Europe 2019, many other countries and cities in Europe have experienced an increase in international investments leading to rises in property prices.
With the capital city of Lisbon being recognised as a top holiday location over the years and the rising number of individuals now choosing to live in Portugal, it is understandable that there will be a commensurate increase in prices of properties for sale in the country. Following the PWC report, Lisbon is leading the charts as the top choice for overall prospects in 2019, causing an increase in the average price of properties in Portugal per square meter to about €984, which is significantly lower than the prices observed in Lisbon at about €1,500 per square meter. Lisbon is also ideal for real estate investment as the Portuguese government offers a “golden visa” to attract international investors, which may be the case for British investors after Brexit.
It is possible to obtain this golden visa or an investment visa in Portugal if the investor fulfils any one of the following requirements:
Creates at least 10 or more employment opportunities in Portugal
Transfers a capital of a minimum value of EUR 1 million
Invests a minimum value of €350,000 in either scientific research or real estate in less developed regions of Portugal
Invests at least €500,000 in a property in Portugal or in a business in Portugal
Invests in Portuguese arts and cultural heritage with a minimum of €250,000.
Investors should note that these investments have to remain as is for the five year period during which the golden visa is valid. Additionally, such investors can take advantage of the other associated benefits such as the requirement to stay in Portugal for only 2 weeks per year, ability to obtain Portuguese residency for specific family members, access to the healthcare and educational facilities , lower tax rates as well as visa-free travel to countries in the Schengen region. These are probably some of the reasons why many international buyers are increasingly interested in the Portuguese property market in Lisbon.
Germany is also a top interest for investors after Brexit as Berlin remains number 2 on the top 10 picks for 2019 closely followed by Frankfurt in 5th position, Hamburg in 7th and Munich in 10th place. Observers expect Frankfurt to enjoy great benefits from the effect of Brexit on EU real estate and other industries although it is difficult to estimate the rate of this move from London. This increased importance of Germany stems from the location of the European Central Bank in Frankfurt as well as the lower living expenses associated with the city in comparison to others like Paris and Berlin where rental costs are on the rise. Munich is viewed as a reliable option for European investors however, the generally higher living costs is a source of uncertainty to investors. Even with all these higher costs, Germany and its many cities, are a constant favourite for investors looking to mitigate the effect of Brexit on their EU real estate portfolio.
Some other cities that seem to be of great interest to investors include Dublin, Ireland which is rated 3rd, Madrid in Spain ranking 4th and Amsterdam, the Netherlands coming in 6th. Investors seem to prefer these cities for back-office operations as they are considered to offer better value seeing as Amsterdam is already a growing hub for a number of financial trading companies even though it may be faced with housing challenges and increasing property prices due to the reduction in new property development. This opens up opportunities for the other bustling cities of The Hague and Rotterdam in The Netherlands where there was a rise in property prices by about 17% leading to an average price of €271,000. Similarly, Dublin shows evidence of growing occupation demand, however it is confronted with the issues about supply pick up especially as it is not easily accessible from continental Europe, and the effect of Brexit is still a cause for concern. Madrid coming in 4th place gives a form of reinforcement for Lisbon and southern Europe as there are strong indicators of possible improvement in rental conditions, which may be the cause of the many changes in the long-term rental laws by the Spanish government.
Helsinki coming in at number 8 gives a great push to the Finnish market as its economy shows signs of growth causing international investors to rate it higher than Copenhagen, Oslo and Stockholm which are ranked at 13th, 16th and 19th positions respectively. These lower rankings in Denmark’s, Norway’s and Sweden’s capital cities, may be due to the challenges faced as housing prices peaked and started to fall. These trends caused the government to place restrictions on mortgages in Copenhagen while Oslo and Stockholm experienced a downturn in their residential properties.
More cities in the top 20 include Vienna, Austria coming in at number 9 with its property prices still remaining relatively low even with its central location and access to other major countries. The increase in real estate activities in Austria may be evidenced by the 18% increase in its real estate prices within Vienna. This property price increase in Vienna is still considerably minimal as other towns such as Feldkirch and Bludenz experienced more growth at about 25.4% and 22.1% respectively. In essence, the Austrian market seems to be gaining steam and average property prices in Feldkirch and Bludenz are about €350,000.
As the Greek economy is now stabilizing and its tourism industry is on the rise, the real estate market has definitely started growing. There has been an increase of 2.51% in property prices in Greece as observed through 2018, especially with the highest rates in major cities like Athens and Thessaloniki. Additionally, the expected returns on investments in Greek real estate markets seem promising at an estimated range between 2.6% and 4.5% depending on the location and sizes of the property. Athens rose rapidly to number 14 on the PWC ranking, as its new economic revival and government policies are going a long way to attract investment in real estate in Greece.
Further, the Greek government is also offering several incentives to encourage such investments which would be beneficial considering the projected effects of Brexit on the EU real estate industry. These programs include the “golden visa” which is similar to that offered by Portugal, however, the minimum investment amount across the country is the lowest in Europe at €250,000. There is also a reduced property transfer tax from 10% to 3% and lower interest rates on mortgages to support such investments and minimize the effects of Brexit on EU real estate market.
Luxembourg in 12th place closely follows the French capital city of Paris, while Prague coming in 17th just after Lyon and then Milan placed in the 20th position are also great cities to invest in now that the effects of Brexit on the EU real estate market are still uncertain.
The industry leaders, in their choice of cities to invest in, so as to manage the effects of Brexit on the EU real estate assets, indicate transport as the top consideration including access via roads, rail and air. There is also great importance placed on investment and development opportunities as well as expected returns, market size and the general performance of the economy within that city. These among many other factors including regulations, digital connectivity as well as the availability of or attractiveness of the city to the skilled workforce also play a significant role in the choices of cities in continental Europe considered by investors due to the effect of Brexit on the EU real estate industry. It is possible to start exploring several properties for sale and long-term rent in Europe.