The inevitable has happened. Britain has overwhelmingly voted to leave the European Union (EU). So, what does it imply for investors from the Gulf and Middle East who have invested billions of dollars in the UK property market?
London and emerging cities of Manchester and Birmingham have traditionally attracted heavy interest from wealthy Middle Eastern families, private investors and sovereign wealth funds.
Although buyers were holding off investments in the run-up to the crucial Brexit vote, this period of uncertainty and weakening of the pound will open up opportunities for savvy investors.
However, for those invested in the UK property market, the deterioration in the value of sterling overnight will have erased any gains in recent years, particularly buyers from the Gulf, whose currencies retain a fixed peg to the US dollar.
Says Faisal Durrani, head of research at Cluttons: "Any US dollar or UAE dirham investors will find the price of an average prime Central Lond on residential asset $96,000 [Dh350,000] less than it was on June 20. Conversely, London residential property is now $96,000 cheaper for international buyers looking to enter the market.
"A silver lining today is that those from the Gulf eyeing up a London residential asset will find it 31 per cent cheaper than it was during the last market peak in Q3 2007, suggesting that we may be on the cusp of seeing a significant resumption in property investment activity in the British capital, particularly as global investors seek out safe haven assets such as gold and London's bricks and mortar, which we expect will retain its appeal," Durrani adds.
Several overseas investors had put big-ticket commercial property transactions in London on hold or inserted Brexit clauses so as to reassess their investment outlook in case of a withdrawal from the EU. They were worried that a weakened sterling would result in reduced appetite for leasing commercial space in Britain.
The currency play could have potential implications for the central London market, which depends heavily on foreign investment. The weakening of the pound could provide a short-term boost to demand for housing in the capital.
A recent Knight Frank report on 'Brexit and GCC investor sentiment' was sanguine about prospects for the property market in case of a Brexit. Access to the single market of the EU is not the only reason investors are drawn to the UK, says the report. It identifies opportunity in uncertainty based on the UK's strong economic fundamentals.
For instance, London continues to top the list of the 10 most important cities to private investors. Also, the UK is still forecast to outperform the wider EU area and G8 countries by 2020 (GDP growth rate of 2.1 per cent as per the International Monetary Fund).
The supply-demand dynamics also work in favour of London property. Despite a significant pick-up in construction activity, the demand for housing continues to outstrip supply. This imbalance is expected to reinforce prices further, adds the Knight Frank report.
"We are firmly of the opinion that it will be business as usual, at least in the short to medium-term," according to Declan McNaughton, managing director UAE of Chestertons Mena.
Chestertons closed property sales worth over Dh610 million on behalf of Middle East investors in 2015. London was the most attractive market for Chestertons' Mena investors, with more than Dh265 million invested into the UK capital's real estate market. This represented over 70 per cent of their total sales of nearly Dh379 million.
"London has long been a favoured destination for investors from the Middle East. It is a mature, well-regulated market with a solid track record for capital appreciation. Many Middle East investors are familiar with London, visiting on a regular basis," informs McNaughton.
For Chestertons, buyers from Kuwait topped the GCC list of investors, accounting for 21 per cent of total London sales, followed by Saudi Arabia (17 per cent), Qatar (10 per cent), UAE (10 per cent) and Bahrain (7 per cent). The balance of other buyers was made up of nationals from UK, Switzerland and Iran, McNaughton adds.
However, there are likely to be risk-averse investors who will refrain from making plays for some time as they want to develop a good understanding of the risks-returns scenario. They may either pull out investments or stay put without investing further until clarity emerges.
Says Victoria Garrett, associate partner, head of international project marketing (Mena) at Knight Frank: "We have already seen a Brexit effect on investment into the UK property sector from Middle East buyers as well as elsewhere globally. The fear of the unknown is creating a wait-and-see approach for a number of buyers and sellers who are not pressed to act."
"The increase in stamp duty fees for second home owners that came into effect on April 1 will also have a knock-on effect of slowing sales volumes in the months to follow as the market starts to try and absorb this new change coupled with Brexit. What we have seen are savvy investors who are looking at London as a safe haven and place for capital preservation taking advantage of the current currency play with the weakened sterling to invest into the UK market," Garrett adds.
Meanwhile, the UK - particularly cities like London - has always held a special attraction for Indians, particularly HNIs, with business interests or families there. "Such individuals will keep a close watch on the effect of Brexit on UK's property prices. It is very likely that many more Indians will seek to invest there," says Anuj Puri, chairman and country head, JLL India. Other property experts were unable to pinpoint the exact outcome of Brexit on the UK housing market.
Says Edward Macura, partner, Cushman & Wakefield Core: "It is impossible to predict what will happen to the UK housing market with any great accuracy until we know what Brexit will mean for the wider economy. What we do know from lead indicators is that uncertainty before the referendum impacted on new buyer enquiries. A continuation of that uncertainty is likely to pull back price growth and transactions in the short term."
Meanwhile, the extra three per cent stamp duty on second homes has resulted in buy-to-let investors reviewing their strategies.
"The prime markets may well see a greater short-term impact. However, along the line, a fall in the value of sterling should bring some international buyers back into the market, albeit with potentially less gusto than in previous downturns given higher stamp duty costs," adds Macura.