Three and a half years after the referendum that was held on 23rd June 2016, the United Kingdom has finally left the European Union after having signed a withdrawal agreement. From now on, both parties must negotiate the terms of their future bilateral relations as the result of leaving the Single European Market, which is not outlined in the agreement. Meanwhile, the United Kingdom will continue to the community structures and the rules of the European Union until 31st December. From 1st February, the UK ceased to consider itself a member state of the EU. This has caused many questions to arise for the economy, but also a threat the Spanish property market due to the consequences that stem from Brexit.
In our country, the British are the most important foreign group for the Spanish property market, more so than Belgians, Germans and the French. As a result of Brexit, there has been a fall in interest amongst British people wanting to buy property in our country, caused mainly by two different factors: an unwillingness to spend money, which is typical of any period of political and social change and the possible devaluation of the pound. Still however, the possibility of a softer Brexit could bring about slight progress for the property sector between the United Kingdom and the European Union.
In this sense, the British people will feel that they have to delay their decision to buy so that they can see what the economic consequences of leaving the European Union will be before doing so, this will be the case particularly for those who would like to purchase a second home in our country.
Perhaps, it is as a result of all this that 85,000 British people applied for a passport or for residency in another member state, according to data obtained by the OCDE in 2019.
Spain, in this sense, is one of the most popular destinations due to its climate. The Interior Minister revealed at the end of 2019 that there were 365,000 British residents in our company, which shows a 10% on 2018 figures.
Today, the most attractive areas of Spain for British people to buy properties are Madrid and Barcelona, followed by the Costa del Sol. After Brexit, the demand for these areas dropped considerably, however it is hoped that, if negotiations lead to a softer Brexit, demand should begin to increase again in the following year once discussions surrounding a new bilateral relations agreement, which would regulate EU-UK commercial relations, are completed.
One particular case of the effects of Brexit in our property market is that of the Línea de la Concepción and the Campo de Gibraltar, where a considerable increase has been seen in property sales to Gibraltarians. As a result of this, the average price of second-hand housing in the area has fallen significantly. It is important to emphasise that in the referendum held on 23rd June 2016 nearly all citizens of Gibraltar voted in favour of staying in the EU (95.1%).
With regards to the consequences of Brexit for reciprocal investment between Spain and the United Kingdom, numerous analysts foresee an uncertain situation due to the future economic power of the UK largely depending on the negotiations for the new trade deal that are being developed over the course of this year.
However, the property market in the UK has experienced strong regrowth since Boris Johnson´s victory. Property prices in January 2020 rose 1.9% compared to January 2019, whilst it is predicted that within the next five years, house prices in highly sought after areas in central London will rise by 20% and that rental prices will rise by a maximum of 10.9%. Despite this, the firm Ernst and Young urges us to remain cautious with any investments within the UK property market because the rebound effect could be limited by time.
In any case, the United Kingdom carries on being one of the largest European markets. A report from Pricewaterhousecoopers indicates that, even in the event that a bilateral agreement isn´t reached, it will still be a market for investment but more focused on one-off deals and opportunities.
Finally, the United Kingdom has agreed to start conversations with the United States in order to secure a free trade agreement after Brexit. This could bring about many tax benefits for both countries and as a result, a diversion of property investment from the UK to the USA.
Authors: Ángel Lavín & Paloma Sánchez