Malaysian developers with exposure to the UK included SP Setia Bhd, Sime Darby Bhd, Eastern & Oriental Bhd (E&O) and Eco World Development Group Bhd.
PETALING JAYA: The UK’s referendum to leave the European Union (EU) or Brexit, could spell a gloomy medium-term outlook for the British housing market.
RHB Research said in a report that Brexit would likely heighten the political, economic and foreign exchange (forex) risks.
“Both foreign and local buyers would be cautious about buying properties”.
Malaysian developers with exposure to the UK included SP Setia Bhd, Sime Darby Bhd, Eastern & Oriental Bhd (E&O) and Eco World Development Group Bhd.
RHB Research said the uncertainty arising from Brexit could see E&O’s launches being delayed, resulting in the company’s land holding cost being higher.
“If the conditions worsen, we do not rule out the possibility that some of these land plots will be put up for sale.
“Recall that E&O has earlier cancelled its plan to list its UK assets on the London Stock Exchange due to Brexit concern.
“As such, E&O has to carry its pound debt in its book, and its gearing has reached 77%,” it said.
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.
RHB Research added that Brexit could result in downside risks to SP Setia.
“Even if the pound is to depreciate further, we believe both foreign and local buyers will likely hold back their purchases, as they ‘wait-and-see’ how the developments will affect UK property prices.
“SP Setia will, therefore, be unable to rely on the UK to drive its new sales.”
The research house said about 4.2% of SP Setia’s debt is denominated in pound.
“While a weaker pound may be favourable in terms of forex, we are concerned on the potential callback on UK borrowings if real estate values depreciate sharply, as the loan-to-value threshold may be triggered.
“However, we think this risk will likely be mitigated by the backing of both Sime Darby and the Employees Provident Fund (EPF) in this Battersea Power Station project.”
Sime Darby and SP Setia has 40% stakes each in the Battersea project, with the remainder stake held by the EPF.
Meanwhile, AmInvestment Bank said in a report that Sime Darby would not be significantly affected by Brexit.
“Our model already assumes a stronger pound at RM5.48 compared with the current level of RM5.6994.
A further 5% weakening of our pound assumption to RM5.201 would shed less than 0.5% off our fair value.”
The research house said the fall of the pound could actually kick-start a new round of foreign interest in choice addresses, such as Battersea.
“The London property market had already softened before Brexit amid rising costs, tightening of tax regulations and financial market volatilities.”
Shares in SP Setia closed three sen up to RM3.01 yesterday, while Sime Darby and E&O were down four sen and one sen respectively to RM7.45 and RM1.63.
