For those keeping track of global events that could impact New York’s real estate market, here’s another one to add to the list: Britain’s June 23 referendum on whether to leave the European Union.
According to a new report by brokerage Knight Frank, fears of an E.U. exit are putting a damper on London’s luxury real estate market. That could be good news for its direct competitor, New York City.
Luxury real estate prices in central London grew 0.1 percent year-over-year in May – the lowest growth rate since October 2009. Knight Frank sees the looming referendum as the “primary cause” of the latest slowdown. “Buyers and sellers are postponing decisions because of the prospect of entering unchartered economic and political territory,” the report’s authors note.
As The Real Deal previously reported, foreign luxury apartment buyers are keen on cities like London and New York in part because they are seen as politically and economically stable. Britain’s potential departure from the E.U. – dubbed “Brexit” – could change that equation for London. Numerous reports have suggested that if Britain votes to leave, it could suffer economic turmoil in the short run and slower growth in the long run. The country’s prime minister, David Cameron, would likely resign.
Edward Mermelstein, an attorney who helps buyers from countries like Russia, Kazakhstan and China invest in New York real estate, said a Brexit could accelerate an already noticeable shift in demand from London to New York.
“Many people are looking at us as an alternative to London,” he said. “We’ve seen nice pop in last few months with respect to activity.” Mermelstein added that a tightening of immigration restrictions in Britain and a recent hike in the stamp tax on secondary home purchases have been the main dampeners on London’s market to-date.
Although New York’s luxury market has been dealing with a slowdown as well, Mermelstein said that the growing number of buyers ditching London in favor of New York has softened the blow. “As small as that group may be, for the upper end of the market it’s fairly significant,” he said. “If you have 10 to 15 people that at one point were considering going to London all of a sudden looking at our market, that is a significant shift.”
For now, he hasn’t noticed buyers shift from London to New York – but that could change. “My sense is that if the referendum actually passes, at that point you will see high net worth individuals look to move real estate assets to a safe harbor like ours,” he said.
In the Financial Times’ latest poll of polls, an average of 46 percent of British respondents wanted to remain in the E.U., while 43 percent favored an exit.