Lodha, Indiabulls face near-term challenges from Brexit: Fitch

Indiabulls Real Estate and Lodha Developers have made sizeable investments in London's Mayfair and suburbs in 2013 and 2014.

Sanu Sandilya
  • Updated On Jul 12, 2016 at 08:30 PM IST
NEW DELHI: Real estate developers such as and Lodha Developers and Indiabulls Real Estate with significant investments in the London property market will face near-term challenges from Britain's vote to leave the EU, says Fitch Ratings.

Indiabulls Real Estate and Lodha Developers have made sizeable investments in London's Mayfair and suburbs in 2013 and 2014.

While Indiabulls Real Estate is less exposed to demand volatility in the next six to 12 months because it only expects to start developing its properties in 2017, Lodha could be more exposed to near-term property-market turbulence because it has already launched the smaller of its two investments, according to the release.

"Lodha's rating (B/Negative) already factors in the uncertainty around presales in its projects, both at home and overseas, as well as our view that near-term operating cash flows may not be sufficient to reduce its high leverage. IBREL's rating factors in its demonstrated ability to reduce leverage over the last 12 months, as well as the modest improvement in sales momentum in its key domestic property projects," said Fitch Ratings.

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, according to the rating agency. "Homebuilders 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 added.
Demand for luxury residential properties and commercial properties may remain weak at least over the coming six to 12 months as buyers postpone purchases and banks trim loans amid increased economic uncertainty.
Fitch Ratings estimates prices of London's luxury homes have fallen by 5-20% over the last few weeks, despite the British pound trading at all-time lows against the US dollar.

However, the agency says these risks may be moderated over the longer term by the tight supply of new residential developments, particularly in Central London, owing to challenges in securing regulatory approvals on new projects.

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

  • Published On Jul 12, 2016 at 08:08 PM IST
Be the first one to comment.
Comment Now

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETRealty App

  • Get Realtime updates
  • Save your favourite articles
Scan to download App