Friday 29 Mar 2024
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SINGAPORE (July 5): The unexpected result from the UK referendum may have shaken stock markets globally and caused a temporary collapse of the pound, but JLL believes UK’s fundamentals remain sound and could mitigate the impact on the UK economy.

According to JLL:

1. The Brexit vote remains a political not an economic shock.

2. Business and consumer confidence will be key, but impact could be eased by political progress.

3. Weaker sterling and lower borrowing rates provide an economic safety valve, while inflation rates are currently exceptionally low.

4. Financial distress is moderate with no repeat of the credit crunch in prospect and interest rates may be cut further.

5. UK financials are well capitalised and household and corporate balance sheets are healthier than before previous downturns.

In addition, there could be downsides to the property market, says JLL, given that UK’s business prospects will depend largely on the trade agreements that will be in place.

1. Occupier demand is expected to fall alongside with slowing economic growth and declining business sentiment. The most badly hit sectors would include financial services and manufacturing. Rentals could be impacted, though the extent would be mitigated by the limited supply.

2. Investor sentiment could fall further as well, and reduce capital flows in the short to medium term.

3. JLL also foresees a negative capital value adjustment over next two years, particularly in London where it is most susceptible to correction.

4. While the UK’s residential market is expected to cool despite lower interest rates, JLL does not expect it to be severe, especially as prices on London’s prime properties will benefit from the currency movement. Transaction volumes, however, will see steep declines.

“For property markets, the initial correction may be most severe, followed by an upturn as opportunities re-emerge in the UK and benefits of weak sterling are recognised. Much will depend on sentiment, relative pricing in Europe and progress on a new settlement for the UK,” says JLL.

Units of Mapletree Commercial Trust are down 3.3% to S$1.46

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