What the Brexit result will mean for Aussie property

Adam Smith 24 June 2016

uk and australiaThe Brexit vote appears to be headed toward a conclusion, but what will it mean for Aussie property?

Great Britain has finished voting in its EU referendum, and results seem to suggest Britons have chosen to leave the European Union. The result could see Australian banks and borrowers hit with an economic shock.

In a column for the Australian Financial Review last week, Wakelin Property Advisory director Richard Wakelin argued that a decision to leave the EU could have disastrous consequences for the UK economy, and a flow-on effect that could hurt residential property in Australia.

“If the money markets think a Brexit-triggered recession is a reasonable prospect, a Leave result could see a violent reaction, with sterling and, to a lesser extent the euro, taking a battering. Moreover, as funds flee to the safe haven of the US dollar, other minor currencies including the Australian dollar may fall as well,” Wakelin wrote.

Wakelin said Australian banks could be impacted by the economic shock.

“The heightened volatility sees a risk that Australian banks have to pay more for the capital they borrow overseas (they source around one-third of their funds through these wholesale markets), which they then lend to domestic mortgage-holders. We could face a situation where mortgage interest rates rise independently of the Reserve Bank's actions. In a worst-case scenario, there is a contagion effect and we get a GFC-type crisis,” Wakelin wrote.

Colliers International took a more sanguine approach to the Brexit vote, arguing that Australian property could weather either outcome. Associate research director Daniel Lees said a Leave vote could have seen international property investors seeking safe havens.

“Uncertainty surrounding the future of trade agreements would presumably take a significant amount of time to work through, fundamentally altering the transparency that property owners find crucial to making investment decisions. It could temporarily tarnish the appeal of the London property market with global investors, improving the outlook for other major capital cities. If the results of our global investor survey are followed, Melbourne and Sydney are well placed to benefit from capital flows, should the London commercial property market lose its lustre,” he said.

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