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Joint SPR/IPF Outlook for UK Property 2018, 9 January 2018
Allen & Overy
A Crème Brulée Market?
This major event in the property investment calendar was held on Tuesday, 9 January 2018 at Allen & Overy, London, E1 and chaired by Andy Martin, Chief Executive, BNP Paribas Real Estate.
Why is the current UK property market like a crème brulée? According to Tony Brown, Chief Investment Officer at M&G Real Estate, they are both hard and sweet on the surface but soft and sticky underneath. On the sweet side, returns are holding up well, with the MSCI/IPD index set to breach 10% for 2017, something few predicted at the start of the year. UK property still looks reasonably priced, and the recent weakness of secondary asset values could provide opportunities in the years to come – as long as the worst kind of Brexit can be avoided. But on the sticky side, Brown cautioned that market demand is heavily dependent on overseas investors, particularly those from Asia. Their appetite could be quelled by new restrictions on exporting Chinese capital and the end to the exemption from capital gains tax for investors into the UK.
Fredrick Nerbrand, Multi-asset strategist at BlackRock, believes that inflation may be the biggest sticking point for global asset markets in the months ahead. GDP may still be moving forward in most regions, but the momentum looks set to slow, especially if interest rate hikes gather pace in the US, which could happen if Trump’s fiscal expansion feeds through to prices. European equity markets should still benefit from liquidity, but the same can’t be said of credit markets, where yields are relatively low and there is little room for manoeuvre. Real estate could be in a similar boat, as evidenced by the growing hunt for yield in some markets.
For the UK economy as a whole, the B-word continues to cast its inevitable shadow. Loretta O’Sullivan, Group Chief Economist at the Bank of Ireland, noted its twin influences – a weak pound and growing caution in the minds of both the UK consumer and its businesses. The latter is clearly limiting growth prospects compared to pre-referendum forecasts. However, all of the speakers verged towards a moderately favourable settlement as the most likely outcome of Brexit.