Johannesburg - Local analysts say it is too early to quantify the effect on locally listed property funds as the UK property outlook worsens, with some UK funds freezing withdrawals.
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“Recent events have spooked markets – with good reason,” Barclays analyst Jon Bell said in a research note yesterday, in which he downgraded UK homebuilders to hold from buy. “Though we are cautiously optimistic, believing a policy response is likely, recent events lead us to lower our industry view.”
Many UK property funds are listed on the London Stock Exchange, as well as the JSE, such as Capital & Regional, Schroder European Real Estate Investment and Redefine International, among others.
Local property funds have recently been seeking to diversify their local property portfolios by buying UK assets as a hedge against the weak rand. An example of this is JSE-listed Texton Property Fund, which is currently rolling out a UK strategy to achieve the long-term objective of a 50 percent portfolio exposure by value to the UK real estate market.
Ndibu Motaung, the head of commercial property at Lightstone Property, said: “We will only see the impact in the next couple of months. The effect will trickle to the big listed funds.”
John Loos, a First National Bank property strategist, said: “
It is still too early to tell how Britain’s exit of the EU will impact our property sector and South Africa’s economy at large. In short, we don’t know yet how it is going to impact our economy and the property sector going forward.“
Andrew Konig, the chief executive at Redefine Properties, said: “As far as Brexit is concerned it won’t help the South African property market at all.”
The vacancy levels in the office property space would not be improved because of Britain leaving the EU. “Where I see it having a positive impact will be on our interest rates,” he said.
Konig said the Brexit had created uncertainty in the markets and the London office space might be negatively affected by the move. UK property funds with about £18 billion (R345bn) of assets froze withdrawals as investors sought to dump real estate holdings in the aftermath of Britain’s vote to leave the EU.
Henderson Global Investors, Columbia Threadneedle Investments and Canada Life suspended trading in at least £5.7bn of funds on Wednesday. Aberdeen Fund Managers cut the value of a property fund by 17 percent and suspended redemptions.
Analysts warn that London office values could fall by as much as 20 percent within three years of the country leaving the EU. UK-based Vodafone Group said last month that it would consider moving its headquarters elsewhere unless Britain negotiated continued access to EU’s single market and workers. Along with Vodafone, several other companies including EasyJet and Visa are reportedly considering moving offices out of the UK following the vote.
The FTSE 350 Real Estate Investment Trust has fallen 19 percent since the vote and the Bloomberg UK homebuilder index has slumped 35 percent.
“It’s reminiscent of Bear Stearns’ subprime funds before the Lehman debacle,” Bill Gross, a fund manager at Janus Capital Group, said. “The system doesn’t allow liquidity to flow into the proper places. If these property funds are just one indication, perhaps there will be others to follow. I think it’s something to worry about.”
During the financial crisis of 2007 and 2008, real estate funds were similarly hit by redemptions and forced to halt withdrawals, contributing to a slump in property prices of more than 40 percent from their peak in Britain.
“The problem with open-ended funds is you do start to have panic selling, so you really have no choice but to suspend the fund,” Jason Hollands, the managing director at investment firm Tilney Bestinvest, said. “There’s an inevitability to this now.”
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