The impact of political risk on real estate investment: evidence from the Scottish “neverendum”

Abstract

Purpose The purpose of this paper is to consider the role of political risk in real estate and to specifically examine the implications in Scotland of continuing uncertainty caused by political events. Design/methodology/approach The primary research links the political timeline around the Scottish independence referendum in 2014 to time series of a combination of individual investment transactions, measures of sentiment from investment agents and yields. The analysis distinguishes between UK and overseas investors. Findings The political risk over six years ebbed and flowed with the changing probability of constitutional change but ultimately it has been a cumulative dampener on investment in Scotland. An element of the political risk can be deemed to be specific risk linked to UK institutional fund mandates that stems from concerns about possible forced sales with independence. In addition political risk is in the eye of the beholder with overseas investors in Scotland unfazed by the prospects of independence. Practical implications The short-term impact on investment of the Scottish “neverendum” is very similar to that for independence. The consequences are depressed investment and development that seem set to continue at least until the constitutional hiatus begins to be resolved. Originality/value This is the first study to explicitly examine the impact of political uncertainty on the real estate sector.