Indian realty firms to be affected due to Brexit: Fitch

The Dollar Business Bureau

Indian realty companies having exposure to the property market in the London are going to be affected in the near future due to UK’s decision to exit the European Union, Fitch Ratings said.

“The demand for commercial and luxury residential properties in London, the sectors in which some Indian real estate firms have invested, may stay sluggish for over the next 6 to 12 months as buyers delay their purchases and banks cut loans due to increased economic uncertainty,” the global rating agency said in a report.

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

Of these two companies, IBREL has less exposure to the demand volatility in the coming 6 to 12 months as it is likely to begin construction of its properties in 2017, the rating agency said. Lodha Developers is more likely to be impacted with the near-term property market instability as the real estate firm has already launched its smaller project of the two investments.

The Fitch report stated that the asking prices of luxury residential properties in London have declined 5-20 percent, as per market estimations, in the last few weeks.  The demand for commercial property has also weakened, and in some cases, driven investors to leave the investment funds related to commercial property, Fitch said.

The report further said that several international and domestic banks have also reduced credit exposure to property investors in London by cutting loan-to-value ratios or by stopping fresh loans altogether. 

The risk for India’s homebuilders have to depend on the level the leverage was utilised to fund their projects in London, and whether the projects development and marketing coincide with the recent volatility in the market, the rating agency said.

Indian homebuilders can choose to delay their marketing launches till there is improvement in the investors’ sentiment, reduce prices to spur high sales, or sell equity shares in the projects to cut leverage, it stressed.