Give the Brexit Bandwagon a Wide Berth

08.08.16

"Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth." Robert Kiyosaki

 Who’d have thought it. Overnight, London has become a more affordable global property hotspot – particularly for those paying in euros and dollars. Increasing concern over the stability of the Eurozone may be on the minds of many. Not unduly surprising, given that the legislative framework giving effect to the Brexit vote has yet to be formalised, with investors weighing up the changing opportunities and risks.

The future of the prime central London market will of course depend on the mated fundamentals of supply and demand: the extent to which sellers will need to lower prices before buyers feel insulated from future price falls; and the ratio trade-off between those choosing not to buy a new home in London because of Brexit and the number of ‘strike while the iron’s hot’ speculative investors, particularly those scooping up currency gains as sterling drops.

Both bulls (glass half full investors) and bears (glass half empty investors) can, however, make money in this uncertain market. It’s those who get caught up in the moment and overreach themselves who will likely come unstuck. A core characteristic of the ‘bandwagon effect’ is that it’s self-fulfilling – when investors see the price of property falling, the herd mentality can take over. Many run for the hills, which in turn fuels further falls. Experienced players on the other hand, stay focused on the fundamentals. They stick close to the property pack but remain on the fringes. This way, they don’t get trapped in the middle of the panic when the next stampede comes. So, don’t let immediate market conditions and short-term shocks mess with your head. Property troughs are normal and are not a reason to sell (or indeed buy), at a loss.

Whether you’re an owner occupier or a professional investor, it’s worth remembering, that long-term, property is still the best performing investment asset class around. The huge shortage of property in the capital against strong domestic driven demand has not changed overnight just because of Brexit. And while, there’s little doubt that the UK-EU split will be played out over the next few years on a global stage that will continue to push markets in unexpected ways; having a Plan B in your back pocket for the moment when the market stabilises can only strengthen your position. Context counts in the investment world.

Until next time.

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