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London's Brexit pains could mean gains for American luxury real estate

Lawrence Lewitinn
Lawrence Lewitinn

American luxury real estate brokers are hoping Brexit will lead to money flowing to high-end properties on this side of the Atlantic.

The post-Brexit vote selloff in equities took a particularly heavy toll on British homebuilder shares. For example, Persimmon (PSMMY) lost a third of its value in Friday’s trading.

Central London, after all, had for many years been the safe haven real estate market for many moneyed purchasers. In 2013, roughly three-quarters of all newly built central London residences were bought by non-Brits, according to research by brokers Knight Frank. About 44% were from Singapore, Hong Kong, and China, with Russia and the Middle East also represented.

But last year, the “super-prime” market in the city (homes above £10 million) saw a decline by a third, in part because of higher property transaction taxes.

With Britain now seeking to end its membership in the European Union, US luxury real estate brokers are anticipating that overseas investors in the London market will unload their properties and take their money stateside.

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Leonard Steinberg, president of New York-based brokerage Compass, anticipates a 5% annual decline in UK real estate over the next two years, with London seeing heavier losses.

“London has, for the longest time now, been the global center of the economy, and I do believe that this is a stumbling block for them,” said Steinberg, whose agency’s $672 million in residential transactions in the past year were the most for any team in the US, according to data firm Real Trends.

“Anything in the United States will fare very well with the European-centric audience,” he added. “New York, Boston, Chicago, Miami, Los AngelesI think major centers will always do very well with a foreign buyer.”

Jonathan Miller, president of appraisal firm Miller Samuel, doesn't see London real estate money flooding into America just yet. The British pound received a significant drubbing on Friday, making American property even more expensive to U.K. buyers. Besides, about 44% of Britain's exports go to the European Union and unwinding the relationship could lead to a drag on the U.K.'s economy over the next couple of years. 

Nonetheless, he expects some upside in the highest reaches of the luxury market, especially in New York City. “London as a competitor is probably off the table for many global investors,” he wrote in his latest note. “New York super luxury remains challenged by oversupply—with more supply coming—but it's still a better outlook for the NYC market, if only a nominal amount.”

Yet the benefits maybe short-lived. Prolonged uncertainty in Europe might work its ways to these shores, and uncertainties about the US presidential elections are also a worry, warns Steinberg.

“There is so much uncertainty that the only certainty that is out there is uncertainty,” he said.

 

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