Market commodities are greatly impacted when a nation’s government loosens its ties with international groups. The European Union is one of the more established politico-economic unions in the world dating back its beginnings on November 1, 1993. It suffered an overwhelming loss, when 52% of the United Kingdom voted to leave as against 48%.
But what are perceived setbacks awaiting the UK? For one, its sterling dropped to a 31 years old value against the US buck. Its share market has somehow recovered from the slump before the referendum. Its banks plan to cut borrowing rates to stimulate investments in coping with the fear of pullouts.
What’s the summary? The main stakeholders of UK (e.g., investors, creditors, people, community) fear that the UK – or the EU – will have a major collapse anytime soon. When spending and investing habits become volatile, that disrupts the entire economy.
Let’s now put the limelight on one cost driver that is bound to take a dip – rental fees and property costs. We all know that Europe charges some of the costliest rents in the world. Will the recent Brexit take its toll on these?
Less visitor arrivals surely won’t help
It’s already been expected by the UK government. The recent drama is uninviting for both EU and non-EU nationals. Lower immigration equals less demand for accommodation and lodging. That reverses the bargaining power back to the lessees and first-time buyers.
Thanks to the limited supply of rents, landlords and house owners can take a breather for now. But if the competition grows soon, the will be detrimental for them.
Meanwhile, the demand for housing is also expected to be in a slump. It’s because people are less likely to buy real property at a time of economic distress. This will prove to be convenient for first-time buyers as they can take advantage of discounted prices. It’s not that easy, though, as the construction sector will be plagued with increasing costs.
Less immigration would then lead to shortage of skilled workers.
UK’s manual labor workforce is largely comprised of immigrants from India, Poland, Pakistan, Ireland, and etc.
These guys are more likely to be discouraged by the devaluation of the British pound. As a result, they are expected to take their skills on neighboring European countries. This will surely have a negative impact on UK constructing firms. If they do have the materials (cement, bricks, timbers, etc.) but don’t have people who’ll put it in one piece, then all efforts will go for naught.
The exit blemishes UK’s status as a harmless investment hub
Through the years past, the United Kingdom has been a face of stability. With its recent exit in the union, it will take years before it can reconstruct their own economic and political identity. This can result to investment pullouts and less confidence in spending by its people. It will cause less demand for house purchases and rentals as people tend to be more cautious.
Downward pressure on prices may just fire back
With all these speculations, the most concerned parties are lettings agents and landlords. The second place goes to construction and housing firms. If what they fear materializes (i.e., substantial reduction in rent and housing prices), they may get discouraged.
What happens then?
When they can’t break even to provide for mortgages, maintenance, or construction costs, they have the prerogative to stop leasing or stop constructing. This is essentially critical provided that UK’s supply of houses and property for rent is not that abundant. Landlords have to maximize their welfare too.
When landlords feel oppressed with the fall in rent prices, they may counter back by putting off their property for rent. They’ll just wait for the opportune time when prices stabilize. This just puts the pricing decision back to square one.
The same goes for build-and-sell businesses. If they stop constructing, buyers, including first-timers, would be forced to increase their bid price.
As a conclusion, UK’s impact on commodity prices, including rent and housing, remains uncertain. It’s yet to be felt by its people, businesses, and immigrants. For now, we can only speculate and make predictions on the overall effect of that move.
Monica Morgan is a free-spirited woman having vast experience in article writing. She loves to travel Asian countries, writing reviews on each of them on her Hqessays.com. She prefers using diverse writing styles to properly engage with a wide array of readers.
October 26, 2016