FTSE 100 real estate stocks are the biggest losers in today’s trading. They are led by Berkeley Group Holdings, Persimmon, Barratt Developments, and Taylor Wimpey in that order. Their losses range between 7% and 3% as I write. The reason is obvious – stalled Brexit trade talks, especially for lack of any other evident sector-specific developments.
#NoDealBrexit speculation hits real estate stocks
Since pre-market hours this morning, I feel I’ve been bombarded by Brexit bad news. #NoDealBrexit is trending on Twitter, as is #BrexitShambles. The Guardian ran a headline quoting a “very gloomy” perspective from the EU on the talks. And the Financial Times quotes EU Chief Negotiator Michel Barnier as saying he “cannot guarantee” the Brexit deal.
The resulting uncertainty from this is bad for stock markets as a whole, but it’s particularly bad news for property market stocks. That’s because property markets can have a different function in our lives unlike say, consumer goods, healthcare, and entertainment. Spending on these segments is more often than not according to our immediate wants or needs.
But buying real estate is an investment. This is especially true for buying to let, where we expect to create another income stream from our property. If there’s perceived uncertainty about the UK’s future then both the rental income and property value can weaken.
Limited cushion from the property market boom
It would be comforting to think that property markets are cushioned to take a Brexit blow right now. According to a recent Halifax report, the UK’s house prices have grown at their fastest rate since 2016. Unfortunately, the house price boom is driven by the stamp duty waiver and low interest rates on home loans.
The waiver is expected to stay in place only until the end of March next year, which is less than four months away. Banks are already increasing interest rates on borrowings for homes according to a Financial Times report. This could, at the very least, taper demand for property. Real estate stocks will clearly be a natural casualty of this trend. Additionally, they are feeling the Brexit heat.
FTSE 100 property stocks can still be a good buy
But I think it’s a good time to buy real estate stocks and hold them for the next few years or more. This is because today’s price blow is based on speculation. What if there is a last-minute Brexit deal? They’ll start rising again and this will be a lost buying opportunity.
Even if there’s indeed a no-deal Brexit, who is to say that the economic damage will be irreversible? A lot depends on how the economy is managed post-Brexit. If it’s managed well, growth could be back on its feet soon enough.
However, there’s a real risk that things may go seriously awry. To that extent, I wouldn’t put all my money into the property markets but diversify it across sectors. A blend of safe stocks and more risky ones is a strategy to consider. This will hold me in good stead whether or not there’s a no-deal Brexit.