As the United Kingdom gets ready to vote June 8 in its second general election in just over two years, an issue preoccupying the country's real estate sector is how the opposing parties plan to approach negotiations to exit the European Union.
Industry figures are worried about the potential for a "hard Brexit" – a separation from the European Union with no access to the economic bloc's Single Market or Customs Union. The right-wing Conservative government led by Prime Minister Theresa May has reiterated in its manifesto its plan to bring the U.K. out of the Single Market and Customs Union, but says it will "seek a deep and special partnership including a comprehensive free trade and customs agreement."
Still, the Conservative manifesto repeats a warning made by the prime minister that "no deal is better than a bad deal for the U.K.," which would mean the hardest form of Brexit. Walking away from the negotiations without a deal would leave many unresolved issues, including trade; the border between Northern Ireland, which is part of the U.K., and the Republic of Ireland, which is a separate EU country; and the position of U.K. and EU nationals living in the other's jurisdiction.
"When we look at the manifestos, the primary concern is really about Brexit. It's about the uncertainty over process and whether it increases or decreases the chances of a hard Brexit. That's really the prism that in particular foreign investors are seeing the whole election through," David Hutchings, head of Europe, Middle East and Africa investment strategy at real estate services firm Cushman & Wakefield, told S&P Global Market Intelligence.
For U.K.-based companies and investors, the nature of the exit from the EU is no less worrisome. "At heart, in terms of the Brexit negotiation, for us, it's all about investor confidence and that is in large part around skills and talent and the ability to operate in the U.K. for a whole range of businesses," British Property Federation CEO Melanie Leech said in an interview.
The Conservative approach is contrasted by the opposition Labour party, led by Jeremy Corbyn, which has promised to approach the talks with "negotiating priorities that have a strong emphasis on retaining the benefits of the Single Market and the Customs Union – which are essential for maintaining industries, jobs and businesses."
The Labour party trailed the Conservatives by six percentage points in a Survation/Good Morning Britain poll published May 30. A Guardian/ICM poll published the same day had Labour at 12 percentage points behind the Conservatives. Both polls showed Labour gaining ground and continuing its recovery from a YouGov poll that placed it 23 points behind shortly after the election was called on April 19.
While the Conservatives are still considered to be strong favorites to form the next government, the scale of their victory is the crucial factor when it comes to Brexit, said Hutchings. "It's really a question of how big the opposition is and whether that opposition will try to create a softer Brexit," he said. "In that light, the view of the Labour party, and indeed the Liberal Democrats and the Scottish National Party as well, is all quite supportive for foreign investors because they see that as being a larger opposition in Parliament that would at least try to steer away from a hard Brexit."
The Liberal Democrats, who are defending eight electoral seats after a disastrous 2015 election result, came in at 8% in the Guardian/ICM poll. The SNP, which only fields candidates in Scotland, holds 56 seats and polled 4%.
In the event of an unexpected Labour victory, the real estate sector's attention is likely to turn to other policies the party is proposing. Twenty years after Labour achieved its largest-ever election win, secured on a centrist platform led by Tony Blair, the party has returned under Jeremy Corbyn to its more traditional leftist roots. The Labour manifesto promotes a more aggressive tax-and-spend fiscal policy, promising to focus investment on health, education and social care, along with plans to renationalize the rail network and energy utilities, perceived by Corbyn and large sections of his party to be failing the public.
These spending plans are to be financed by income tax hikes for the top 5% of earners along with a rise in corporation tax to 26%, which is "still keeping U.K. corporation tax among the lowest of the major developed economies," according to the manifesto.
While more sympathetic to Labour's desire for a soft Brexit, investors might see higher taxes on businesses as "an additional negative factor," said Hutchings, at a time when the Brexit process is already creating uncertain operating conditions.
"It would appear that with anything other than a soft Brexit there will be corporate losses for the U.K. to endure as people put more facilities into continental Europe," he said. "You need to attract new business to replace that, so if there are any measures that international investors deem as negative then that will affect their stance."