Johnson's victory brings some certainty to UK property market

London

THE Conservative Party's emphatic victory in the UK general election last Thursday has given the country's real estate market what it's been craving for more than three years: the prospect of some political certainty.

Prime Minister Boris Johnson now has the votes he needs to push his Brexit deal through Parliament.

For investors and developers who have been waiting for clarity on this issue since voters backed Britain's withdrawal from the European Union (EU) in mid-2016, the election result brings with it the possibility of increased deal-making and new projects.

Investors have been cautious about committing to deals while it remained unclear if Parliament would ever pass a withdrawal agreement that would alleviate the risk of a disorderly divorce.

Deals for London offices fell by almost half in the first nine months of this year, as the UK staggered through three missed Brexit deadlines and the election campaign, according to data compiled by broker CBRE Group.

"The certainty that a parliamentary majority provides is incredibly welcome," said Neil Sinclair, chief executive officer of landlord Palace Capital. "Investors will now have the appetite to go ahead and commit."

While developers have taken a cautious approach to starting new projects, companies including Linklaters have continued to seek new office space this year. That has helped keep rents and values high.

Mr Johnson committed to taking the UK out of the EU by the end of January if he secured a majority, and every Conservative candidate signed a pledge to approve his deal. Once Britain has left, it can begin negotiations on its future trading relationship with the bloc.

Under the current timetable, the UK has until the end of 2020 to conclude a free trade agreement with the EU, a deadline Mr Johnson has said he will not break. That is a tight schedule, given that the EU's trade deals with other countries have often taken longer to finish.

"A Tory majority is the most positive or benign outcome for business and the real estate market, but I don't think this is going to lead to any sudden euphoria or an investment spree into the UK," said Rob Wilkinson, chief executive officer of AEW Europe, a real estate investor with about 70 billion euros (S$105 billion) of assets under management.

He said "critical uncertainties" will still remain, particularly around whether Brexit can be completed by the end of January and a trade deal can be done on schedule.

That could mean any boost in activity is short-lived, as the prospect of a messy separation emerges again toward the end of next year, rekindling fears of widespread economic disruption and job losses.

"The clock will start ticking very quickly toward end-2020 when the transition period comes to an end," said Zachary Gauge, a real estate analyst at UBS Group's asset management unit.

"Based on the experience of the previous three and a half years, it's very difficult to see how all the details of the future trading arrangements can be tied up within 11 months." BLOOMBERG