A POST-Brexit property market has been established in the UK thanks to an influx of international investors entering the market in the wake of the referendum vote.
Calum Bruce, manager of the Ediston Property Investment Company, said that while a “period of uncertainty and volatility” followed immediately after the vote that has now reduced and “a post-Brexit market has materialised”.
“In the immediate aftermath of the EU referendum there was a lot of volatility in the property market,” he said.
“A fall in property values is never a good thing but when you look at what people were predicting – a fall in value of up to 15 per cent – that didn’t materialise.
“A post-Brexit market established very quickly and a lot of overseas investors came in.
“The fall in currency and reduction in property values brought them in but with a good income return and stable legal system in the UK there are a lot of compelling reasons to invest in UK real estate.”
Mr Bruce said the Ediston fund, whose assets increased in value by 2.2 per cent excluding investments in the year to the end September, suffered a post-referendum reduction in value of 60 basis points between July and September.
The trust, which added two properties during the course of the year at a total cost of £41.4 million, ended the financial year with a valuation of £181.4m, up from £136.4m.
Mr Bruce said this was a “good result given some of the headwinds we had to endure over the course of the year”.
In addition to the Brexit vote, he said former Chancellor George Osborne’s decision to raise the upper rate of Stamp Duty Land Tax (SDLT) from four per cent to five per cent in March of this year had a dampening effect on valuations in the sector.
“That has affected everyone – no one was prepared for that,” he said.
While the change did not apply in Scotland, which raises its own Land and Buildings Transaction Tax instead of SDLT, all but two of the fund’s properties are based elsewhere in the UK, where Mr Bruce said “the effect was that all valuations were reduced by about one per cent”.
The trust, which launched two years ago with five properties valued at £76.7m, now has 13 assets under management in the office, retail warehousing and leisure sectors.
All of these are based in the UK regions, with Mr Bruce noting that London is “still a little bit expensive” to justify holding any assets there.
The trust is committed to paying an annual dividend of 5.5p per share, which it pays in monthly instalments. For the year to September the total dividend payment was £7.1m, which was met through the rental income generated from the portfolio’s holdings.
Mr Bruce said a number of asset management initiatives had been undertaken during the course of the year in order to maximise this income.
“St Philips Point in Birmingham is a multi-let office with retail units on the ground floor,” he said.
“We did a refurbishment and since then its 100 per cent let.
“There was also a failed shopping mall on the lower ground floor which was a complete waste of space but we’ve transformed that and let it in its entirety to David’s Bridal.”
Looking ahead to 2017 Mr Bruce said there were “reasons to be positive” about the UK property market, but that they had to be taken with “an air of caution”.
“The full extent of Brexit has not been seen in the occupational market yet and we are due a bit of inflation next year so it’s worth monitoring the retail side of things,” he said.
“Property as an asset class provides good income, potential for capital growth and we still have buyers there.
“Despite what we’ve been through we are still seeing deals going through. If there had been no buyers then the post-Brexit situation would be a bit more challenging than it has been.”
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