UK property market on risk alert after Brexit vote

AFP

The outlook for Britain’s property market darkened on mounting evidence that the country’s vote to exit the European Union is weighing on asset values.
Aberdeen Asset Management became the latest of seven financial groups to order a temporary suspension on redemptions from UK property funds after companies and individuals rushed to withdraw investments in reaction to Brexit.
Aberdeen has also slashed the value of its fund by 17 percent, while Legal and General has taken a 15 percent cut, affecting redemption amounts when suspensions are lifted.
The move by Aberdeen “takes the value of frozen real estate funds to more than half of the sector’s £25 billion ($32 billion, 29 billion euros) total”, said Mike van Dulken, head of research at Accendo Markets.
Since the start of the week, six other companies have suspended UK property funds: Aviva Investors, Canada Life, Columbia Threadneedle, Henderson Global Investors, M&G Investments, and Standard Life.
Prior to the suspensions, companies paid out redemptions from their cash balances but are now looking to sell assets to meet future withdrawals. “The suspension of trading, or gating, of several UK property funds highlights the immediate risks to commercial real estate from the European Union referendum result,” Fitch Ratings agency said in a statement on Thursday.
Real estate has emerged as one of the hardest hit sectors from last month’s referendum result on Britain’s EU membership, after warnings before the vote that a “Leave” outcome would spark a property market meltdown.
The Bank of England this week said that Brexit risks to Britain’s financial stability were “crystallising” — and cited London’s “overstretched” commercial real estate market as a major cause for concern.
Edward Hardy, corporate market analyst at traders World First, said Thursday in a client note that should the trend for suspending funds continue over the coming weeks, it “certainly doesn’t bode well for UK property”.
Toby Courtauld, chief executive of London-focused property firm Great Portland Estates, meanwhile said that the capital’s commercial property market is expected to weaken because of Brexit — and cited the prospect of “reduced rental growth”.
A commercial property fund’s value is determined by the value of the owned properties, such as shops, warehouses and offices — and by rental returns and overheads such as taxes paid when buying a building, according to an explanation by Legal and General on its website.

House prices
The UK’s domestic property market is also feeling the pressure, with top home loans provider Halifax on Thursday reporting that house price growth has eased to the slowest annual rate in almost one year.
Property values rose by 8.4 percent in June compared with the same month of 2015. That was the lowest figure since a 7.8-percent annual increase in July 2015.
“House prices continue to increase, albeit at a slower rate, but this precedes the EU referendum result, therefore it is far too early to determine any impact since,” said Halifax housing economist Martin Ellis.
Fears are growing that Brexit could spark a slump for in particular London’s property market, which has benefitted from record low UK interest rates and an influx of overseas buyers.
London’s upmarket estate agency Foxtons said that already prior to the referendum there were signs that the capital’s high-end property market was slowing after a hike in taxes on transactions the government imposed in order to prevent a bubble, and cautioned that its profits would be hit this year.
But Barnes, another high-end realtor, said it had received many calls from foreign buyers looking to take advantage of their increased purchasing power given the fall in the value of the pound.
“The market is very active because people are looking to take advantage now,” Barnes’ president Thibault de Saint Vincent has said in a statement.
Share prices of UK homebuilders meanwhile rallied in trading on Thursday as investors fished for bargains following recent sharp falls in the wake of the June 23 referendum outcome.