No attribution requiredHistoric Brexit defeat triggers Sterling rise
Pound sterling responds positively to Brexit vote, but property markets still face ‘significant risk’ of ‘no deal’.
January 24, 2019Real Estate
UK prime minister Theresa May suffered an historic defeat in Parliament on 15 January, when MPs voted down her Brexit deal - presented as the Withdrawal Agreement and Political Declaration - by 432 votes to 202 votes. Touted as a ‘meaningful vote’, the unexpectedly high margin of 230 votes was the largest Parliamentary defeat ever suffered by a sitting government in history.
The UK’s currency (the pound Sterling) rose in the immediate aftermath of the result, closing the day at GBP 1.287/USD against the US dollar, having dropped to GBP 1.27/USD earlier in the day, ahead of the vote. Governor of the Bank of England Mark Carney, speaking to Parliament’s Treasury select committee the day after the vote, said that Sterling’s rise appeared to reflect "some expectation that the process of resolution would be extended and that the prospect of a ‘no deal’ may have been diminished." Carney cautioned, however, that the markets were looking to Parliament for direction and that continued currency volatility could be expected.
To avoid a ‘no deal’ Brexit on 29 March, further parliamentary legislation is required in order to extend the two-year time frame for withdrawing from the EU, as stipulated under Article 50 of the Treaty on European Union. Some commentators believe that the European Union would be willing to extend the process by up to three months, but not for much longer. So how likely is the risk of a ‘no deal’ outcome?
In its UK Real Estate Market Outlook 2019, CBRE makes a brave stab at placing a 40% probability on a ‘no deal’ which, the report states, “creates a significant risk for property markets.” Downside risks include fresh currency depreciation and substantial market uncertainty, “likely to lead to a near-freeze in occupier and investor decisions until some of the immediate implications become clearer in the first half of 2019. However, there might be some offsetting benefits for property markets, including renewed international investor and tourist interest, benefitting the capital markets and sectors like luxury retail and hotels.”
CBRE, like the Bank of England governor, looks to Sterling’s movement as the best signal for how markets view Brexit progress. From that, CBRE concludes that “the withdrawal agreement will, in the end, be implemented in broadly the form currently proposed by the prime minister.”
By way of contrarian view, Byron Wien, vice chairman in the Private Wealth Solutions group at Blackstone - which is reported to be close to finishing a $20bn fund raise for the world’s largest ever real estate, private equity fund - sees a Brexit surprise in 2019. A surprise is defined here as an event which the average investor would only assign a one out of three chance of taking place, but which Wien believes has a better than 50% likelihood of happening. His surprise is that “March 29 comes and goes and there is no Brexit deal. Parliament fails to approve one and Theresa May, arguing that a change in leadership won’t help the situation, remains in office. A second referendum is held and the UK votes to remain.”
Brexit and its impact on real estate markets will be discussed further at British & Irish GRI 2019 on 15-16 May in London.
The UK’s currency (the pound Sterling) rose in the immediate aftermath of the result, closing the day at GBP 1.287/USD against the US dollar, having dropped to GBP 1.27/USD earlier in the day, ahead of the vote. Governor of the Bank of England Mark Carney, speaking to Parliament’s Treasury select committee the day after the vote, said that Sterling’s rise appeared to reflect "some expectation that the process of resolution would be extended and that the prospect of a ‘no deal’ may have been diminished." Carney cautioned, however, that the markets were looking to Parliament for direction and that continued currency volatility could be expected.
To avoid a ‘no deal’ Brexit on 29 March, further parliamentary legislation is required in order to extend the two-year time frame for withdrawing from the EU, as stipulated under Article 50 of the Treaty on European Union. Some commentators believe that the European Union would be willing to extend the process by up to three months, but not for much longer. So how likely is the risk of a ‘no deal’ outcome?
In its UK Real Estate Market Outlook 2019, CBRE makes a brave stab at placing a 40% probability on a ‘no deal’ which, the report states, “creates a significant risk for property markets.” Downside risks include fresh currency depreciation and substantial market uncertainty, “likely to lead to a near-freeze in occupier and investor decisions until some of the immediate implications become clearer in the first half of 2019. However, there might be some offsetting benefits for property markets, including renewed international investor and tourist interest, benefitting the capital markets and sectors like luxury retail and hotels.”
CBRE, like the Bank of England governor, looks to Sterling’s movement as the best signal for how markets view Brexit progress. From that, CBRE concludes that “the withdrawal agreement will, in the end, be implemented in broadly the form currently proposed by the prime minister.”
By way of contrarian view, Byron Wien, vice chairman in the Private Wealth Solutions group at Blackstone - which is reported to be close to finishing a $20bn fund raise for the world’s largest ever real estate, private equity fund - sees a Brexit surprise in 2019. A surprise is defined here as an event which the average investor would only assign a one out of three chance of taking place, but which Wien believes has a better than 50% likelihood of happening. His surprise is that “March 29 comes and goes and there is no Brexit deal. Parliament fails to approve one and Theresa May, arguing that a change in leadership won’t help the situation, remains in office. A second referendum is held and the UK votes to remain.”
Brexit and its impact on real estate markets will be discussed further at British & Irish GRI 2019 on 15-16 May in London.
