A leading expert on the Spanish property market argues that Spain has nothing to fear from a Brexit, at the end of a week in which he leave camp has been gaining ground.The Spanish daily El Mundo published an article today by Gonzalo Bernardos, an economics professor and director of the real estate programme at the University of Barcelona, arguing that the positive repercussions of a Brexit (leave) result in the UK referendum on EU membership (on the 23rd June) would outweigh the negatives. I’m not sure I buy all his arguments.
Bernardos starts by pointing out how British PM David Cameron has a habit of resorting to referendums (that blow up in his face I would add) in place of showing leadership and negotiating solutions. Can’t argue with that.
He then says that a Brexit result “would have very negative consequences for the UK,” more so than for the rest of Europe. “Whether it turns out to be a foot shot, stomach shot, or head shot, will depend on the results of the negotiations between the new Government and the European Commission.” He then runs through all the negative consequences of a worst case scenario for the UK, including losing the City of London as a global financial centre.
He then concedes that a Brexit “would hurt the Spanish housing market, especially in some of the best known coastal resorts, as the British are the biggest group of foreign buyers.” In the event of a Brexit this demand “would fall considerably due to the loss of [British] jobs and the pound losing value, which would raise the cost of [Spanish] property in their national currency.”
So he accepts that a Brexit would be a blow to the coastal markets of the Costa del Sol and the Costa Blanca, which have been in the vanguard of the Spanish property market recovery, such as it exists. I think that’s plenty cause for concern.
ACCENTUATE THE POSITIVE
Bernardos then goes on to argue that the positives would outweigh the negatives for the market as a whole. He may be right, but that’s no consolation for the resort markets on the coast.
What would be the positives, in Bernardos’ opinion? “One would be the increase in demand for high-end homes in Barcelona and Madrid, as well as other European cities. This demand would come from non-doms in the UK losing the right of free movement in the EU.” He argues that millionaires from Asia, Eastern Europe, the Middle East and Africa who bought a mansion in London to enjoy free movement on the continent would now abandon London in favour of European cities like Barcelona and Madrid, driving up demand. Good news for a few high-end agents, perhaps, but I can’t see this compensating for a big loss in British demand, given that the British are the biggest group of foreign buyers by a wide margin (22% of the foreign market in Q1).
“But the most important positive effect would come from the reaction of the ECB,” says Bernardos. “ To avoid a shock to the Eurozone recovery, stock market falls, and lower spending by households and companies, the ECB would probably lower interest rates again (currently -0.4%) and inject more liquidity into the economy, pushing Euribor further into negative territory (-0.013% in May) and increasing mortgage lending.” That would all push up local demand for property in Spain, and stimulate the market. I guess that’s possible.
Furthermore, he wouldn’t be surprised if Brussels were to relax austerity and deficit reduction rules in the EU to head-off referendums in other countries. That would allow the Spanish Government to spend more and increase economic growth in the short-term, which would also boost housing demand.
A Brexit would be bad news for European cohesion and integration, he concedes , but not for the Spanish property market on the whole, as the “positive repercussions would far outweigh the negatives.”
He ends on a euphoric note. “In the last four years the situation has turned around. Before hand, any change was negative for the residential market; today, almost everything is positive. The virtuous circle has arrived.”
Bernardos is one of the most bullish commentators out there. Personally I worry a Brexit would be bad news for everyone in Europe, Spanish property market included (and I doubt it would deliver the Jerusalem promised by the out campaign, so don’t believe it’s worth the risk). And I can’t see it as anything but bad news for the markets where the British dominate (Costa del Sol, Costa Blanca, the Balearics and the Canaries), at least in the medium term until a new order is established. What would that order be? Who knows.
The latest polls, betting odds, and pound-euro exchange rate suggesting which way the vote might go in the UK’s referendum on EU membership on the 23rd June.
The vote is important for anyone with an interest in Spanish property, as I explain here: UK EU-referendum implications for Spanish property market
LATEST OPINION POLLS
That last three opinion polls put the leave camp ahead all week by between 3% and 6%. That’s the most steady lead the leave camp has since the referendum campaign began.
LATEST BETTING ODDS
The odds of a Brexit have been getting much shorter. The remain camp is still the odds on favourite, but the the race is closer than it was, as far as the bookies are concerned. Also check out Oddschecker for more odds.
LATEST EUR/GBP EXCHANGE RATE
The pound spent most of the week under pressure from Brexit camp gains and close to year lows, but jumped on Thursday as terrible news came in of the horrific murder of MP Jo Cox in West Yorkshire, going from a low of 1.252 on Thursday to 1.27 on Friday afternoon. You can see the calculation being made – that this murder will be bad for the Brexit camp.
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Here are a few that strongly believe the UK should remain a member of the EU:
• Governor of the Bank of England
• International Monetary Fund
• Institute for Fiscal Studies
• Confederation of British Industry
• Leaders/heads of state of every single other member of the EU
• President of the United States of America
• Eight former US Treasury Secretaries
• President of China
• Prime Minister of India
• Prime Minister of Canada
• Prime Minister of Australia
• Prime Minister of Japan
• Prime Minister of New Zealand
• The chief executives of most of the top 100 companies in the UK including Marks and Spencer, BT, Asda, Vodafone, Virgin, IBM, BMW etc.
• Kofi Annan, the former Secretary General of the United Nations
• All living former Prime Ministers of the UK (from both parties)
• Virtually all reputable and recognised economists
• The Prime Minister of the UK
• The leader of the Labour Party
• The Leader of the Liberal Democrats
• The Leader of the Green Party
• The Leader of the Scottish National Party
• The leader of Plaid Cymru
• Leader of Sinn Fein
• Martin Lewis, that money saving dude off the telly
• The Secretary General of the TUC
• National Union of Students
• National Union of Farmers
• Stephen Hawking
• Chief Executive of the NHS
• 300 of the most prominent international historians
• Director of Europol
• David Anderson QC, Independent Reviewer of Terrorism Legislation
• Former Directors of GCHQ
• Secretary General of Nato
• Church of England
• Church in Scotland
• Church in Wales
• Friends of the Earth
• Director General of the World Trade Organisation
• World Bank
Here are pretty much the only notable people who think we should leave the EU:
• Boris Johnson, who probably doesn’t really care either way, but knows he’ll become Prime Minister if the country votes to leave
• A former Secretary of State for Work and Pensions who carried out a brutal regime of cuts to benefits and essential support for the poorest in society as well as the disabled and sick
• The guy who was Education Secretary and every single teacher in the country hated with a furious passion for the damage he was doing to the education system
• Leader of UKIP
• Britain First
• Donald Trump
• Keith Chegwin
• David Icke