Brexit Impact: How A Weak Pound Will Bolster Indian Realty Investors' London Dreams

British Prime Minister David Cameron and others opposing 'Brexit' dreaded the consequences if Britain were to leave the European Union (EU). When the debate over the possible exit was going on, Treasury Chancellor George Osborne had, among other possible consequences, warned of a housing market price crash. He declared that holders of real estate assets might enter a territory of negative equity. Things were already not quite bright in real estate as the government's move to reset the stamp duty charges in March had resulted in real estate markets taking a hit. Investments, too, took a beating as buyers exercised caution over Brexit.

Those who passionately opposed the exit move were left disappointed as Britain on June 23 voted to bid goodbye to the EU. The markets across the world also reacted adversely. Following the announcement, the British pound sterling recorded a historic fall, dropping more than 10 per cent against the dollar to a level last seen in 1985. An environment of general gloom followed, with analysts predicting a more volatile future for the currency.

Ratings went down, too. Lowering Britain's credit outlook to negative after the Brexit referendum, rating agency Moody's said: “Over the longer term, should the UK not be able to secure a favourable alternative trade arrangement with the EU and other countries, the UK's growth prospects would be materially weaker than currently expected.” Standard and Poor's also declared that the country's AAA credit rating was in danger.

The transition period that is likely to take two years is, however, an opportunity for Indian investors looking for a piece of the 'Great' Britain's real estate pie. Many Indians fancy having a home in the British capital of London, which is the perfect mix of unparalleled heritage and unmatched modernity. But it's not often that you find a chance to buy one.

Here are a few reasons why it might be the right time for you to invest in the UK?

• Currency movements: Despite the fact that the rupee also fell amid a weak market sentiment following the Brexit referendum result, analysts say that the impact on the Indian currency is likely to be limited. A weak pound would mean buying property in Britain would be cheaper for Indians. Besides, the real estate market there might see further slowdown as investors would take a wait-and-watch stance amid a volatile currency. In the short term, the relative foreign exchange movement could be more favourable for Indians looking to invest in the UK.

• Weak real estate market in UK: In the past couple of months, real estate in the UK has seen dismal price growth. At its monetary policy review on June 15, the Bank of England noted: “Housing transactions had dropped sharply in April, although this had largely been expected as the surge in activity ahead of the changes to the stamp duty regime unwound… It was likely that the uncertainty associated with the referendum had had some impact, although a range of factors, including some other recent policy changes, were also likely to have contributed.” Once things are back on track, as many expect, and Britain puts in place new terms and conditions on investments, property markets could pick up, making for good returns on investments made in the near term.

• Taxes: When compared with India, taxes on property purchases in the UK are relatively reasonable. For instance, despite the recent restructuring, stamp duty charges in Britain are lower than that prevalent in India. Norms, though, might see a tweak when Britain is completely out of the European Union.

• Interest rates: Noting that “short-term interest rates and measures of the UK bank funding costs appear to have been materially influenced by opinion polls about the referendum”, the Bank of England in its June 15 Monetary policy review kept the interest rates at 0.5 per cent. A later review in rates might make property transactions costlier in that country.

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