Property players unfazed by referendum result

EARNINGS of property players with developments in Britain are unlikely to be affected by UK’s referendum to leave the European Union (EU) – or Brexit.

CIMB Research, in a recent note, says regardless of the outcome, the uncertainty created during the negotiation could deter foreign investment in the London property market.

“Foreign interest may recover afterwards but the extent of the recovery will depend on the terms agreed,” it says.

Malaysian developers with exposure to the UK include SP Setia Bhd, Sime Darby Bhd, Eastern & Oriental Bhd (E&O) and Eco World Development Group Bhd.

Sime Darby says the results of the referendum is not expected to impact the viability of its Battersea Power Station project in London.

“We are confident the iconic development will continue to generate interest in the longer term. Sime Darby is confident that London will continue to remain a key investment destination and financial centre,” the company says.

The Battersea project in the UK is 40%-owned each by Sime Darby and SP Setia, with the remaining 20% by the Employees Provident Fund.

According to CIMB Research, the potential impact of Brexit would have a two-fold effect on SP Setia.

“We believe a vote to leave the EU could affect SP Setia in two ways. Firstly, the pound could weaken as the market turns jittery. This will reduce the earnings and value of SP Setia’s Battersea project in ringgit terms.

“Secondly, the uncertainty about UK’s economy created by Brexit could reduce the demand for UK properties from both Britons and foreign investors. This could affect the sales performance of Battersea.”

Meanwhile, E&O managing director Datuk Seri Terry Tham says in a statement that the company’s UK projects are under way and are expected to progress as planned while the group continues to build its presence in the international market.

“We maintain a flexible and agile stance in the face of any changes in the market environment.

“Specifically, we have carefully selected our three small- to medium-scale projects based on the fundamental strengths of the respective sites and their locality,” he says.

E&O ventured into the UK in 2012 when it acquired Princes House in central London with an estimated GDV of £60mil – which is slated for completion this year.

Affin Hwang Capital points out that market uncertainties due to Brexit concerns have delayed E&O’s plan to list its UK operation on the AIM market as potential investors are cautious on new initial public offerings.

“The translation of its £54.5mil loan to its UK subsidiary into ringgit could lead to unrealised foreign exchange (forex) loss of about RM47mil in the fourth quarter of 2016, based on our estimate.”

Credit Suisse, meanwhile, says that Eco World International (EWI), in which the listed Eco World will eventually hold a 30% stake upon EWI’s listing, has a huge exposure in the UK.

“As at January 2016, EWI recorded £712mil (RM4.2bil) in property sales,” the research house says. EWI is the international arm of Eco World Development Group Bhd, with properties in the UK and Australia.