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Real Estate Investing

Brexit and Western European Real Estate – It Could Go Both Ways

Business analysts have been so busy trying to figure out the long-term effects of the COVID-19 pandemic for quite a while now, that recent developments in the Brexit area have kind of slipped under the radar – and we’re talking about some quite dramatic developments. It is safe to say that the way Brexit is executed (or not executed) will have an influence on real estate markets all over western Europe – and beyond. In general, there is a lot of uncertainty on both sides of the UK-EU accords, and we all know uncertainty is usually not good for the real estate market. I, Ofir Eyal Bar, believe that in this case the turn of events could be very unexpected and very surprising.

More than just removing a star from the EU flag.

Source: https://unsplash.com/s/photos/brexit

Deal or no deal?

October 15th was supposed to be the day when an agreement was reached between the UK and the EU as to the relations (economic, political, cultural, and so on) between both sides on the day after Brexit, which is supposed to be January 1st, 2021. Well, that didn’t really happen, and no one knows if it will by the given deadline. Furthermore, British Prime Minister Boris Johnson was quoted saying that if no agreement is reached, everyone should “accept it and move on” – meaning he is intent on leaving the EU at all costs.

Add to that the great discontent Brits are feeling toward the EU concerning the way negotiations are handled. Many across the UK feel that the other side of the talks is being dishonest, and some commentators even go as far as describing the EU’s attitude as ‘bullying’. Thus, the understanding is that there is no backing down. The Brexit is a done deal, and it’s going to happen with accords between the sides or without them. Investors and analysts are therefore preparing themselves for both scenarios.

The pessimistic prophecy

It seems the sides are heading for a messy divorce at full speed with no brakes. The consequences of such a move would mean the immediate installation of barriers – physical and monetary – between the UK and the EU. There’s no need to describe how the transport of material, labor force and capital would be harmed by that, so that’s a big problem for real estate ventures.

Northern Ireland, UK. Closing borders could be a blow to the European economy.

Source: https://unsplash.com/photos/0tUs4r_pa3E

Add to that the fact that both the UK and the members of the EU are entering this predicted crisis in a financial situation that is far from ideal. Even before the virus reached Europe, the EU was busy covering up the debts of some of its member countries and the UK was already experiencing economic downfall as a result of the vote on Brexit. All of that makes investing in that region seem unappealing, and real estate investments are no different in that sense.

The optimistic prophecy

Many experts believe that we will see a deal being put on paper and signed by January and that recent discords between the sides are just one big game of ‘chicken’. Ultimately, both sides have an interest in parting ways cordially (or at least semi-cordially), but that’s no guarantee that it will actually happen. It is, though, a sign that despite the bad blood between the sides, they are still working on building bridges before bidding farewell. A Brexit that comes hand in hand with agreements will enable the real estate market to continue business (almost) as usual.

Another way to look at the situation, adopted by some investors, is that both the EU and the UK have been preparing for this moment for years. That means both stomachs are mentally ready for the financial blow, making its impact less severe than we would expect. Suppose, therefore, that contractors and entrepreneurs have already found the way to keep things going despite the Brexit? That, only time can tell.

Bottom line

As you can see, the high level of uncertainty and the questionable relations between both parties make it almost impossible to predict the future of real estate in western Europe in the post-Brexit era. As someone who has overseen several projects in that region, as well as ventures in North America, South Africa and other areas around the globe, my recommendation would be to wait before writing up big checks and sending them to the UK and its surrounding countries.

My name is Ofir Bar and I hope you found this information useful if you are contemplating future real estate investments. You are invited to read more of my thoughts on this blog.