What does Brexit mean for the property market?


brexit australia property market leave vote wins china

What will Brexit mean for the Australian property market?

With all but a few results left to count, it is now almost certain that Britain will decide to leave the EU after a narrow margin of 52% to 48% deciding to Leave the EU and become independent today (bbc.com).

So with Britain waving goodbye to its EU neighbours, what does this all mean for Australians? What does it mean for the Australian property market?

 

The main concern surrounding Brexit is the unravelling of the EU and the consequences for world financial markets. Already hitting the news today is the 4% drop in the ASX All Ordinaries index and the UK Pound-USD expecting to drop 10%. (cnbc.com)

With the potential now for a Frexit (France Exit) or a Nexit (Netherlands Exit), Britain’s decision escalates the challenges already faced by the EU and could lead to a domino effect for the EU. This is not what the doctor ordered after the EU already battling the GFC, the Greek rescue, the Ukraine conflict and ongoing refugee crisis.

grexit_brexit_frexit

A slow down in EU economy could impact global markets and with China being the EU’s biggest source of imports it could have a knock-on effect for China’s economy. Australia would be next hit with China being Australia’s biggest trading partner and negatively impacting world commodity prices (read more about this “Is the Perth Property Market dead?” ).

On the other hand, Britain’s split from the EU could see a positive impact on Australia with a return to the golden era of trade cooperation with Commonwealth countries. Australia’s benefit directly with strong trade agreements with the UK in the 1960’s and 70’s called UKATA (UK-Australia Trade Agreement) right up until the 1973 when Britain ascended to the then called EEC. So potentially Australia could re-inact the UKATA and form a whole new trade agreement with Britain which might lead to better bilateral ties. According to forecasts, Britain’s economy is tipped to reach 2.2% growth this year which is 20% higher than EU28 growth forecasts.

Nonetheless, the mechanics of Britain leaving the EU however is far from over. Article 50 is now enaged and this allows a member state to notify the EU of its withdrawl and obliges the EU to try to negotiate a ‘withdrawal agreement‘. This process is expected to take 2 years and the Leave Vote campaigners are admit the leave process should be quick and finish in the 2 year time frame.

Whatever happens from now, it shows that we live in historic and uncertain times. Global share markets right now are reacting to the uncertainty. Peter Leahy (smh.com.au) from the Canberra University’s National Security Institute summed up today’s result nicely saying…..

"This is the world as we've known it, but there is real chance now of economic and strategic uncertainty".

Thanks for reading this blog. We aim to keep you duly informed on all trends in the economy and property market.

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Andrew-Colour_SSRAndrew Caetano is a property investor, blogger and engineer. Having bought and sold a few investment properties over the years, Andrew continues to debunk the myths about property investing to provide independent and factual insight into the property market. In his spare time he provides property talks, workshops and runs a property club membership. His passion includes trying to play golf, DIY projects and looking after his two daughters.

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