Property prices and transaction volumes will be hit if the UK leaves the European Union, says First State Global’s Stephen Hayes.
Hayes, head of property securities at First State and manager of the £257m Global Property Securities fund, told Fund Strategy a potential Brexit “could be an excuse to lead to transaction and prices moderating in the UK, especially in London”.
Total real estate transactions in London reached £30bn last year, a number that was “extraordinary high”, says the fund manager.
Hayes also says a moderation in property prices, especially for residential properties, will enable investors to have “some certainty around” the asset class.
However, Hayes says that for property securities a Brexit will only create “market noise” and that the “underlying fundamentals in real estate won’t change”.
One of the challenges coming up for real estate investors is the interest rate moves, although “this has been well publicised” and any further interest rates rises will only have a moderate effect on prices both in the UK and the US, says Hayes.
He says: “We are in unprecedented times. We have low interest rates and some countries have negative interest rates, as we’ve seen last week in Japan. But the property securities market has a much lower correlation to interest rates movements than other asset classes.
“Investment grade real estate is a very cashflow stable asset and will continue to grow despite what happens in the economy.”
Around 70 per cent of Hayes’ fund is invested in high-grade shopping malls, student accommodation and office buildings.
The largest part of the portfolio, 57.3 per cent, is invested in the US, while 12.8 per cent is in the UK, 12. 2 per cent is in Japan and 4.2 per cent is in Hong Kong.
However, he says: “We’ve reduced some apartment positions in the US as they had low returns. We reallocated that into student accommodation, which is a very interesting asset as it is not very economically sensitive.”