Brexit to hit Indian realty companies having exposure to London: Fitch

Indian builders having exposure to the London property market are going to be impacted in near term from Britain’s decision to leave the European Union, global rating agency Fitch Ratings today said.

“Demand for luxury residential and commercial properties (in London)- the segments some Indian homebuilders have invested in – may remain weak at least over the coming 6 to 12 months as buyers postpone purchases and banks trim loans amid increased economic uncertainty,” it said in a report.

Indiabulls Real Estate (IBREL) and Lodha Developers have significant exposure to the luxury residential and commercial property segments in London, where they made sizeable investments in 2013 and 2014.

Of the two, IBREL is less exposed to demand volatility in the next 6 to 12 months because it only expects to start developing its properties in 2017, Fitch said.

Lodha could be more exposed to near-term property market turbulence because it has already launched the smaller of its two investments.

The report said asking prices of London’s luxury residential properties have fallen 5-20 per cent, by some market estimates, over the last few weeks.

This is in spite of the British pound trading at all-time lows against the US dollar – foreign investors make up a considerable part of the demand for London’s luxury residential properties.

Commercial property demand has also weakened, and in some instances, prompted investors to exit commercial property -focused investment funds, the rating outfit said.

It has led to some funds freezing withdrawals to enable a more orderly closure, while others have offered withdrawals at steep discounts to the net asset value to reflect the potential impact of having to sell assets quickly.

“However, over the longer term, these risks may be moderated by the tight supply of new residential developments, particularly in central London, owing to challenges in securing regulatory approvals on new projects,” Fitch said.

The report said many foreign and domestic banks have also cut credit exposure to London property investors by reducing loan-to-value ratios or freezing new loans altogether.

The rating agency said the risk to Indian homebuilders will depend on the extent leverage was used to fund their London projects, and whether project construction and marketing sales coincide with the ongoing market volatility.

Builders may choose to defer marketing launches until investor sentiment improves, cut prices to spur higher sales, or sell equity stakes in the projects to reduce leverage, it said.

Credits Business Standard

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