Even though the national referendum of the British on the 23 June 2016 with a narrow majority will lead to their exit from the EU, this will not happen immediately; Article 50 of the European constitution provides a clear constitutional path. This will regulate the details of the exit from the EU within the next two years and also includes topics such as freedom of travel, control functions, transport and trade agreements and more. However, until then legal certainty is prevailing. Although some critics seem to be calmed down by it, economic consequences are mostly unforeseeable. Understandably, due to the unsure situation, some investors will withhold.
The disputes within Great Britain reflect in the distribution of the election results, by which the citizens of Northern Ireland and Scotland voted against the exit. But apart from this resentment, one of the most remarkable results of the referendum is the gap between young and old. Especially the people aged 60 and older were in favour of a Brexit, whereas the 18- to 29-year-olds were clearly against it. Remarkable with the younger citizens is the high educational level since 68 percent have a university degree. Despite everything, the election results of all 382 election districts produced a close result: 48.1 percent voted for remaining in the EU, whereas 51.9 percent voted for an exit.
The stock-exchange is a sensitive being – dramatic fall in the value of the British pound
Already during the hot phase of the national referendum, the stock-exchange had reacted and as a result, the British pound hit rock bottom, with a historic low for more than 31 years. The concern of many traders, which the spectacular EU-exit would cause the Monetary Union to totter, is reasonable. If the investors, before the Brexit, were relying on the Brits remaining in the EU, they are now seeking refuge in a stable currency, like the Swiss franc. And the Swiss franc immediately reached its highest level since August 2015. The aspiration of the investors is the hedging demand. A realignment of real estate purchases – oriented towards the continent – may be the result.
But currently, the most asked question is how other European countries will react in the future. There are already voices from the right-winged parliamentary parties, like the Dutch Party for Freedom as well as the Front National in France that speak against the EU. Maybe this could become enforceable, but this might be rather regarded as a philosophical question for the political circus. But already this political discussion has only ensured that investors have become scared. Nonetheless, the concern exists that there might be imitators amongst the EU states.
After the Brexit, the financial centre in London and almost the entire financial industry are to be considered the biggest losers. Almost all credit institutions came under pressure, with the shares of the Commerzbank as well as of the Deutsche Bank leading the way, which collapsed by 17 percent each. Investors are reacting to that, and a migration and reorientation remain inevitable.
London was going too well – even empty high-end real estate’s were possible
London’s real estate market was considered as overvalued already for years. Thanks to the inflowing foreign investors, exorbitant prices for high-end real estate have been achieved. Preferred areas of the city were Knightsbridge, Mayfair and Chelsea – and also the Docklands got more interest and are nowadays shining with their exclusive residential complexes. In the past years, the capital gains of houses and upmarket-apartments in London alone were rising on average by half. After the global financial crisis, investors from all over the world have been looking for a safe haven and have found precisely these objects in London that would guarantee profit gains even in uncertain times.
For this certain type of purchase, it mostly wasn’t about the relocation or start-up of businesses or job creations, but only about maximising capital. As a result so-called ghost streets occurred, surrounded by empty high-end houses. But that didn’t disturb the owners because the waiting was more lucrative than the letting. In the past, price increases from up to ten percent per year could be achieved this way.
After Brexit – what rights will foreigners still have?
There is currently a complete uncertainty about the future rights for citizens of the EU in Great Britain. In the British parliament a “guarantee to stay” is now being discussed, though the Minister for Immigration, James Brokenshire, has spoken against it. About three million citizens of the EU are living in Great Britain, and their future legal situation is at the moment topic number one in the House of Commons. If the status quo is to be maintained temporarily, the limitations of the social benefits are already taken into consideration. This will not only affect the normal EU-citizen but also all companies and financial institutes that have transferred or will transfer their employees.
The situation will intensify by a planned regulation when it concerns the settlement and employment of an EU-citizen. A strict demand of a working permit is being raised. Future freedom to travel will be reviewed and probably won’t match the standards of the European Union if Home Secretary Theresa May’s announcements are to be believed. After the staffs of No. 10 Downing Street have been replaced, it will be seen if May stands by her words.
Access to the European Single Market blocked
But how do things look for foreign investors that have been using London as their location to capture the European Single Market so far? Mainly Chinese have been attracted by a liberal London and have tactically moved their corporate head offices to London. Everything depends now on how quickly the Brits can negotiate with the EU Member States to not block the access to the European Single Market. But the once unlimited access to the European Single Market was one of the most important reasons for Chinese investors that have preferred to invest and establish in Great Britain – more than in any other European country.
Berlin has more to offer – stability of the fundamental data
With the exit of the Brits of the EU, several things will change immediately. Real estate in London will lose on value, and future investors will be faced with the decision whether they still want to invest in the City of London. Because there are many alternatives available with even better conditions. The very stable economical, political and social situation, the strong growth of start-ups in the past years and also the scientific environment in Berlin has attracted more and more investors.
The Brexit is, therefore, developing itself as a secondary catalyst – although as a very important one!
Berlin is offering other advantages such as affordable rents, low living costs and high quality of life. This attracts talents from all over the world, not only start-ups, but also so-called Fintechs that offer services in the financial sector and will decisively shape the banking industry in the future. Even though London was the Fintech-location to date, Berlin could become the new favourite. In 2015, Berlin already left behind London as the start-up location.
Sources:
- Eu-info.de: Nach langer Debatte bei Volksabstimmungen gescheitert
- Yougov.co.uk: Over-65s were more than twice as likely as under-25s to have voted to Leave the European Union
- Bbc.co.uk: The UK’s EU referendum: All you need to know
- Fr-online.deBritisches Pfund fällt dramatisch
- Bz-Berlin.de: Welche Folgen hat der Brexit für Berlin
- Tagesspiegel.de: Warum Berlin Gewinner des Brexit sein könnte
- Zeit.de: Uneinigkeit über zukünftige Rechte für EU-Ausländer
- Faz.net: Mögliche Cameron-Nachfolgerinnen wollen Freizügigkeit beschränken
- N-tv.de: Brexit bremst Investoren aus
