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UK property investors dismiss alarm over prospect of leftist Corbyn government

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UK property investors dismiss alarm over prospect of leftist Corbyn government

A U.K. government led by Labour leader Jeremy Corbyn does not pose the threat to the country's real estate market that some commentators suggest, and could in fact generate growth, major investors in the U.K. property market said at a conference in London.

Discussing the prospect of a left-leaning U.K. government with Corbyn as prime minister, several panelists contradicted the commonly held perception that this would spell catastrophe for the economy and the real estate market specifically.

The imminent departure of Prime Minister Theresa May from 10 Downing St. makes the possibility of a U.K. general election in the coming months more likely, as a new Conservative prime minister would hope to gain an outright majority in parliament and secure a mandate from the country for their leadership.

Samir Amichi, head of European real estate acquisitions at private equity giant Blackstone Group LP, which has $140 billion worth of property assets under management, said a Corbyn government would likely be less radical than other administrations in power elsewhere in Europe. "If you take a European context, the cities of Amsterdam, Berlin and Barcelona are three of the most left-leaning in all of Europe. And some discussions are happening in Berlin that, frankly, Corbyn wouldn't bring up in the U.K.," said Amichi, referring to an ongoing debate in Germany about nationalizing housing to address soaring residential rents.

"And these [cities] are some of the three best-performing real estate markets in Europe [in terms of] office and residential. The typical planning policies of left-leaning governments tend to have positive effects on the value of real estate, particularly existing real estate," Amichi added.

Amichi was responding to concerns about a Corbyn-led Labour government raised by Seb D'Avanzo, head of acquisitions at private equity firm and fund manager KKR & Co., which has $7.2 billion of assets under management in its real estate business. D'Avanzo said that KKR thinks it likely there would be a U.K. general election by the end of 2019, and that Labour would come to power, possibly in a minority government as a result of other parties collectively winning more seats in the House of Commons than Labour.

Such an outcome would make it "pretty hard to invest in the U.K." for KKR, D'Avanzo said. "With that as a backdrop, you have to look at whether that political risk is priced in. We'd argue that it's not. So we are cautious on the U.K.," he added.

Corbyn, who has advocated socialist economic policies throughout his almost 40-year political career, won a vote to become leader of the Labour Party in 2015 following a strong swing to the left among party members. Widely predicted to lead his party to a massive defeat in the 2017 general election, Labour achieved its largest increase in the share of votes since 1945. While the result was not enough to put Labour in power, Corbyn has retained the leadership of the party despite a hostile U.K. news media and continued attacks from within his own party.

Rob Rackind, partner and head of real estate at private equity group EQT Partners AB, which manages a property fund worth €420 million, said that while there is fear and uncertainty around the prospect of a Corbyn government, the real estate sector has benefited from Labour governments historically.

"Under Labour, as a real estate investor, you earn a lot of money," Rackind said. "Because they inflate the economy, they invest, and typically it's good for real estate. You just have to know when to get out early before it comes down crashing."

Alex Knapp, chief investment officer at Hines Europe, which has more than $18.8 billion of property assets under management across Europe, said the current polarization of the U.K. electorate meant that any concerns the real estate sector had about Corbyn's policies were unlikely to ever be realized. "It's hard to see a situation, from our perspective, where Corbyn gets such an outright majority that he can deliver the raft of policies that he's talking about. What's much more likely is a coalition," said Knapp.

Wilson Lee, founding partner of Cale Street Partners, which was established in 2014 with $1.5 billion of capital provided by the Kuwaiti sovereign wealth fund, said that many property investors tend to work around macro issues such as changes in governments and deal with investments on a case-by-case basis. "The macro stuff floats around and that affects how we assess [an investment] and the assumptions we put in it," Lee said. "But we don't think macro factors ever make a market a no-go for us, unless there is a war or something like that."