Is it time to pound on the UK real estate market?
PM Johnson's win to make property attractive, especially for Gulf investors
Business investment into the United Kingdom is expected to accelerate following the thumping victory of Conservatives, with the pound expected to test new highs.
In particular, Prime Minister Boris Johnson's victory in the elections is likely to cause Gulf investors in UK property to ramp up purchases.
Kyra Motley, partner at Boodle Hatfield, says that the period of extremely low London luxury property prices for buyers in US dollars may begin to end as certainty over the UK's exit from the European Union is finally reached. The UK is now expected to leave the EU on January 31.
Since the 2016 Brexit referendum and the country's Brexit-driven economic slowdown have kept purchase prices on central London luxury properties more affordable for Gulf buyers. Sterling is now likely to gradually recover against the dollar, pushing up prices for non-UK buyers.
"For those considering a London luxury property purchase, time is now of the essence. Prices are unlikely to stay so low for a long period, and Gulf buyers will want to get deals completed as soon as possible," Motley said.
"The last three years have been a great time to buy in London for Gulf investors, but that window of opportunity may start to close," she added. "Finally getting certainty on Brexit could see the pound recover, and Middle Eastern buyers lose some of the foreign exchange discount they have enjoyed since 2016."
The Conservatives' victory would cause billions of pent-up business investment to be unleashed in the UK - but there are many serious challenges ahead.
"The pound has enjoyed its biggest surge in a decade on the hopes that a solid Conservative majority can finally end the Brexit deadlock," Nigel Green, CEO and founder of deVere Group, said.
"Many traders were caught off-guard by the size of the majority and this may push the pound even higher than previous predictions. We could see bullish traders now take it to $1.38 or maybe even as high as $1.40."
Sterling was well-supported on Friday after rising overnight to above $1.35 as investors rushed to unwind bets on a weaker pound after the resounding election victory.
The pound was last trading up 1.1 per cent at $1.3324, giving up some of the gains it made overnight when it surged to a 19-month high of $1.3516. Against the euro, the pound was up 1.3 per cent at 83.43 pence, having skyrocketed to a 3-1/2-year high of 82.78 pence.
The currency had jumped more than 2.5 per cent after exit polls pointing to the scale of the Conservatives' win were published, its biggest one-day gain in nearly three years. This was a remarkable jump for a currency that has become extremely volatile since Britain voted to leave the EU in a referendum in 2016.
Against the UAE dirham, the pound was at 4.90 on Friday evening, up 1.2 per cent from Thursday's close of 4.85.
The benchmark FTSE 100 rallied 1.9 per cent, while in Paris the CAC 40 rose 1.2 per cent. Germany's DAX advanced 1.2 per cent as well.
US shares looked set for gains, with the future contracts for the S&P 500 and the Dow Jones Industrial Average both up 0.4 per cent.
Earlier in Asia, Japan's Nikkei 225 index jumped 2.6 per cent and Hong Kong's Hang Seng surged 2.6 per cent. The Shanghai Composite index advanced 1.8 per cent and South Korea's Kospi climbed 1.5 per cent. Australia's S&P ASX 200 picked up 0.5 per cent, while the Sensex in India added 1 per cent.
Oil rose on Friday to its highest in nearly three months as investors cheered progress in resolving the US-China trade dispute and a decisive general election result in Britain.
Brent crude, the global benchmark, was up $1.03, or 1.6 per cent, to $65.23 a barrel at 1514GMT, while US West Texas Intermediate was up 81˘, or 1.4 per cent, to $59.99.
Vasileios Gkionakis, global head of forex strategy at Lombard Odier, said he had now sold sterling after increasing his holding in the currency when it was languishing at $1.26. "We just took profit here," he said. "From a risk-reward perspective it makes sense to take profit."
But Gkionakis, like Green, believes sterling could rise to $1.40 as there was a chance Johnson could now seek to extend the post-Brexit transition period beyond December 2020 in order to complete negotiations on a future trade deal with the EU. During the election campaign, the prime minister had pledged not to do this.
Moreover, with a strong majority in parliament, "Johnson will not rely on Eurosceptics to hold him hostage," Gkionakis said.
Analysts from HSBC expect sterling to rise to $1.45 and to 76 pence against the euro by the end of next year, now that the "politically-driven undervaluation" has been removed. It had previously forecast targets of $1.37 and 80 pence. HSBC said that sterling will again be driven by economic data after years of being politically-driven.
British government bond yields climbed briefly to their highest since early June on Friday before easing back.
"With more political certainty due to the large majority, the UK economy is also likely to receive an election bounce," Green said.
"Billions of pounds in business investment that has been on the sidelines due to the parliamentary paralysis is now ready to be unleashed. This will give a much-needed boost the slowing British economy."
"However, there's still a long way to go. Johnson's self-imposed end of December 2020 deadline is a mammoth challenge, and a no-deal Brexit is still possible on January 1 2021... Johnson's monumental task to deliver Brexit with a deal and the Scotland issue will continue to fuel uncertainty in 2020," he added.
With inputs from agencies
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