A start of the year Market Comment from Nick Churton, Chairman of Mayfair International Realty:

At the end of 2016 we thought that there couldn’t be any more political fireworks in the offing for a while - the Brexit referendum in the UK and the presidential election in the USA were surely quite explosive enough. How wrong we were. By May 2017 the British prime minister had called a snap general election and all but lost. In the same month 40 year old Emmanuel Macron came from nowhere to win the French presidency, and then to top it all the supposedly unassailable German chancellor, Angela Merkle, was assailed. Europe had become a different place by September.

Theresa May’s 2017 election decision is now regarded as the worst in modern British political history. She blew a 20-point lead and, instead of increasing her majority as was intended, she reduced it to the slenderest of margins. The result was a weakened government at a time when the UK was and is facing its sternest test since the Second World War – Brexit.

Brexit seems to have taken over everything. It has reduced even important domestic issues to sideshows. Brexit dominates in the UK and that means in real estate too. Despite a surging stock market, high employment levels and almost unprecedented low interest rates, uncertainty over Brexit is making people think twice about moving home if they don’t have to.

We are used to short term events from time to time suppressing the real estate market. Events like general elections, national referendums and even the Olympics and soccer’s world cup can have a temporary dampening effect. But Brexit, like the great recession of 2008, is another matter entirely. And the Brexit question is going to go on for at least another two or three years.

The Brexit outcome is far from being a forgone conclusion. Nobody knows what sort of nation the UK will be at the end of the long de-coupling process. So hand-in-hand with uncertainty goes depleted real estate activity in the UK.

It seems there are parallels to be drawn between Europe and the US. Despite a soaring stock market, high employment and business growth there are still areas in the US where the luxury real estate sector confounds expectations through surprisingly low transaction levels and downward pressure on values and asking prices. Why? To some this makes little sense. Certainly, as in Europe, there is some political turbulence and uncertainly. But is this the whole reason? It certainly isn’t. There is another elephant in the room – the middle class population. More particularly, it is the middle aged, middle class population. Some of those reaching their forties are taking a long, hard look over their shoulders at the millennials chasing them up the greasy pole. While it might not be a question of fight or flight many are choosing prudence over adventure at this point of their lives - especially if they live in high property tax areas.

What will this mean going forward? In the UK it means that for the next few years, at least, nothing is as certain as buyers and sellers would like it to be. Higher risk real estate investments may be put on hold until career pathways and real estate trends become clearer. In the meantime one thing does seem assured - that first time buyers, urged on by government initiatives, low interest rates, the bank of mum and dad and the retreat of buy-to-let investors will be entering the market in greater numbers than we have seen for years. This is very good news as first time buyers mean second time buyers and second time buyers mean third time buyers and so on. For those in the luxury real estate sector it is a timely reminder that our market is often not so much driven from the top but from the bottom.