Indians' money stuck in British real estate

Mumbai: Indians who purchased luxury homes as investments in London face near term challenges with the asking prices of London’s luxury residential properties falling by 5-20 per cent since Britain voted for leaving the EU on June 23, despite the pound sterling trading at all time-lows against the dollar.

Prices may remain weak at least over the coming six to 12 months as buyers, mostly foreign investors, postpone purchases and banks trim loans amid increased economic uncertainty, says Fitch Ratings.

The gravity of the risks that the Indian investors face  depends on the extent they used leverage to fund their London projects, and whether project construction and marketing sales coincide with the ongoing market volatility.

They have the options to defer their launches until investor sentiment improves or cut prices to spur higher sales, or sell equity stakes in the projects to reduce leverage.

Among investors who had significant exposure to both luxury residences and commercial properties in London’s Mayfair and suburbs were  Indiabulls Real Estate Ltd and Lodha Developers, said Fitch, though India Bulls is less exposed to demand volatility as 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.

However Fitch expects the risk to moderate over the longer term, because of the tight supply of new residential developments. Developers, particularly in Central London, face hurdles in securing regulatory approvals on new projects. In the case of commercial properties where investors preferred to exit due to weak demand some funds had to freeze 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.

Furthermore 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.