When the UK prime minister David Cameron announced in February that the country is to stage a referendum on Britain’s membership of the European Union, you could have been forgiven for thinking the cut and thrust of Westminster politics would have little to do with the sunny Emirates.
But with 100,000 Britons currently living in the UAE, most of whom are likely to be eligible to vote in the “Brexit” referendum on June 23, the debate among British expatriates over here has been hotting up.
Last week a hundred or so Dubai-based Brits even headed to the emirate’s Capital Club to listen to the pro-Brexit former defence minister Liam Fox explain why he thought the UK should withdraw from the European Union.
“[The campaign is] energising all sorts of people who wouldn’t normally be involved in politics,” Mr Fox told a packed room of British businessmen and women. “When we’ve had rallies, we’ve had a big turnout. What that means in terms of voter turnout, I’m not sure. The pollsters tell us that we’re heading for a relatively low poll, which is likely to favour the leavers, whose voters are much more likely to want to come out and vote.”
Those in favour of a Brexit, such as Mr Fox and the London Mayor Boris Johnson, argue that by leaving the European Union Britain will have more say over its own laws, will be able to control its own borders, will free itself from the troubled euro-zone economy and will be free from the high charges and many rules they say have been imposed on Britain by the EU.
Those on the opposite side of the debate, including Mr Cameron, the chancellor, or finance minister, George Osborne and the home secretary Theresa May, believe Britain gets a big boost from EU membership – it makes selling things to other EU countries easier and, they argue, the flow of immigrants, most of whom are young and keen to work, fuels economic growth and helps pay for public services. They also believe Britain’s status in the world would be damaged by leaving and that the country is more secure as part of the bloc.
On Monday February 22, after Mr Johnson’s dramatic weekend decision to back the Leave campaign, the pound fell sharply. So far 36 FTSE-100 chief executives have come out in favour of remaining within the EU. The Bank of England governor Mark Carney is also in favour of Britain remaining.
Despite a number of vociferous speeches supporting Mr Fox’s position at the Capital Club, a vote at the end of the debate indicated that Brits based in the UAE are evenly split between the two camps.
Aside from the political issues that have been dealt with elsewhere, for many floating voters the key question boils down to: “How will this affect my own pocket?” – especially regarding the UK property market in which so many British expatriates and GCC investors have put their cash.
“Most of the clients we have been advising are of the opinion that a Brexit won’t happen and that as the pound is pretty weak at the moment it’s a good time to invest in the UK,” says Richard Bradstock, a director at IP Global based in Abu Dhabi who specialises in advising UAE residents on investing in overseas property.
“We’ve actually seen a marked increase in business this year compared with last year and, for the few of our regular clients who have decided not to buy, it seems that they are using the Brexit vote as an excuse and their real concern is a lack of job security in Abu Dhabi caused by low oil prices,” he adds.
Most commentators suggest that, as with the general election in 2015 and the Scottish Independence referendum in 2014, the uncertainty surrounding the outcome of the June vote is likely to subdue sales until it has been decided. In both 2015 and 2014 potential investors waited to see what would happen before piling back into the market afterwards and sending house prices even higher.
“If, as we predict, Britain votes to remain in the short term, uncertainty between February and June would be lifted, potentially leading to a strong rally in the London housing market,” says Jennet Siebrits, the head of residential research at CBRE Residential.
She points out that after the Scots voted to remain part of the UK in September 2014, housing market activity picked up again, with the total value of sales across Scotland registered between October and December 2015 increasing by 16.3 per cent to just under £4.83 billion (Dh25.23bn) compared with the same period a year earlier. This represented the highest value of sale for any quarter since the first of 2008-09.
“Clearly a weaker economy would be a potential risk for the housing market, but there are strong reasons to believe that whatever happens, the London property market will continue to thrive up to and beyond the June poll,” Ms Siebrits adds.
“Most official guidance suggests that 40,000 to 50,000 new homes need to be built in London every year and, with only 20,000 now being built annually, supply is nowhere near meeting demand. This makes it very hard to see how London house prices can fall.”
Tom Bill, the head of London residential research at Knight Frank agrees.
“The extent of the uncertainty in the run-up to the vote means the country is likely to experience a ‘Brexit effect’, irrespective of whether the country votes to leave the EU. The uncertainty means investment decisions, including property, are more likely to be delayed until after the vote,” he says.
Moreover, if Britain did vote to leave the EU he says that the resultant drop in the value of the pound could encourage overseas investors to pile into the London market.
“In addition to a weaker Sterling, economic uncertainty may keep interest rates lower for longer, both factors that, in more ordinary circumstances, would be positive for the prime London property market,” Mr Bill adds.
But others warn that the growing uncertainty is increasing the likelihood of the market stalling for the 54,000 high-end London flats that are currently being developed and which are often marketed almost exclusively at overseas buyers.
Last week it emerged that British banks have increased interest rates for that most risky area of property finance – development loans for luxury London housing – by about 75 basis points.
According to Savills, over the past six months as the Brexit vote loomed, financing costs for large projects in central London have risen by the highest rate since 2012.
By contrast average interest rate margins for UK housing developments fell to 381 basis points from 453 basis points in the year to the end of June 2015, according to a survey of lenders by De Montfort University.
But estate agents say it is the recent tax changes rather than the result of the EU referendum that is more likely to affect the prime London market. These new rules include increases in stamp duty, capital gains tax and taxes on properties held in corporate wrappers, and reductions in tax advantages for buy-to-let landlords. Under the new rules the stamp duty for a £7.5 million residence to be used as a second home is now more than £1m.
According to Knight Frank prime central London house prices fell 0.6 per cent in the six months to the end of February 2016 – the biggest fall since June 2009.
“The [new tax rules] seem to be of more importance to Mena investors than the Brexit and have led to shift in demand from properties over £1,500 per square foot to those under £1,000 per square foot producing higher rental yields,” says Robert Pearce, the head of residential development and investment at Chestertons.
Back in Dubai’s Capital Club Liam Fox, too, was using housing as an argument for leaving the EU, claiming that allowing mainland Europeans to settle in the UK is pushing house prices as well as squeezing public services.
“In the past 10 years, 1.162 million net EU citizens have settled in Britain,” he says. “That puts a lot of pressure on public services – on school services, the national health services, on housebuilding. “We may have actually chosen to have 1.162 million more people living in the UK, but my point is we didn’t get a choice. They automatically had a right to come.”
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