Brexit has led everyone into a state of apprehension. The decision is for the UK to leave the EU has everyone wondering what will happen to stocks, politics, the value of the pound, and much more. Real estate players are carefully watching the market and buyer and seller activity (or the lack of). But Brexit may have a silver lining for tourists . . . and for property investors.
Unsurprisingly, Brexit is affecting the housing market. Buyers are not sure about the aftermath of this referendum and are just waiting to see what happens. Consequently, properties are not being sold and listing prices are going down. Based on the patterns of previous economic and political changes, sales volumes can decrease by 20%. Will Brexit have the same effect?
Sellers are also now hesitant to list their property on the market – seeing how prices are dropping and the unpredictability of the market.
If buyers do decide to purchase property, mortgages might become more difficult to obtain as lending is said to become more tightly controlled. Although base (interest) rates might be cut, it’s possible that banks will now raise the rates as a way to manage lending, according to Knight Frank real estate agency. Foreign property investors have been very active in London and might continue to do so if the pound continues to go down, making supply decrease even more.
What does this all mean for investment properties? According to the Association of Residential Letting Agents, “Almost half of agents expect the number of prospective tenants per property to fall as international demand weakens. Just over a quarter of agents expect the Brexit result will cause upward pressure on rental costs.” Hence, demand might decrease but prices and the overall rental market will most likely remain constant.
It may not be a buyer’s or seller’s market but rental properties seem to be unaffected as of now. Airbnb investment properties might even perform better after Brexit.
With the pound and Euro dropping, tourists with other currencies can now enjoy Britain for a lot less money now. For U.S. tourists, the dollar can be stretched a lot further and flying to Europe is cheaper. Flights from New York to London in early fall are down by nearly 50%. Everything is cheaper – activities, eating out, and hotel rooms.
This is likely to increase London’s Airbnb occupancy rate although hosts may have to lower their prices if hotels become cheaper.
Is it possible more of Britain’s citizens will now take up Airbnb hosting? The value of pensions are falling and the funding is being heavily affected – is this an incentive to find other means of making extra money and saving? Perhaps sellers whose properties are not selling will decide to take the properties off the market and temporarily rent them out on Airbnb or turn a portion of the house into a rental.
Airbnb investment properties are fortunate enough since they might have found a hedge against Brexit. If tourists from the U.S. are able to increase travel to Europe, this gives hosts the chance to increase their Airbnb occupancy rate. The only problem is, even if their occupancy rate increases, the pound is down, so rental income will not have the same value. Does this mean rates should go up?
It may not be wise to raise prices while hotels and flights are getting cheaper. However, the contrary just might work, users may be willing to pay more for a great property with the money they’re able to save from airfare and activities. See what other properties are doing and play with pricing strategies.
If Brexit is giving creating a 100% Airbnb occupancy rate, then raise those prices. If Brexit is sending tourists to hotels and decreasing occupancy rate, lower those prices to get them coming back.
Russell Quirk, CEO of eMoov says that the market will be able to recover from Brexit, “The London market, as always, is likely to remain in its own impervious bubble despite the choice for Britain to leave. We’ve seen a few market wobbles since the results were announced, but they already seem to be starting to stabilize.”