The Impact of Brexit on SA Property

Brexit Impact on SA Property

Great Britain’s vote to leave the European Union will undoubtedly have a significant impact on many nations and industries around the globe. As one of the most significant economies globally, The United Kingdom’s changing political and economic landscape will be closely monitored throughout the world as Theresa May’s new government re-negotiates the country’s most important trade and geo-political relationships.

Until any new laws or policies are passed, one can only speculate as to the impact of Brexit on South Africa’s property market and economy over the long term. In the short term however, trends indicate no real negative impact for South Africa – potentially even some opportunities.

Major SA Property Companies pro-actively managing risk associated with Brexit

It is evident that the leaders of most SA property companies with exposure to the UK property market are of the opinion that the SA property market in particular is unlikely to experience any significant impact in the wake of Brexit. In fact, most major property companies with significant interests in the UK have pro-actively strategized for such an eventuality.

A prime example is the strategy of Redefine International – one of the offshore vehicles for major South African Listed Property Fund Redefine Properties who owns a 30,1% stake. As of February 2016, the company’s £1,5 billion portfolio has an estimated 35% exposure to the UK retail sector. In an interview with Moneyweb, Redefine International CEO Mike Watters states that although the company was not expecting the UK to leave the EU, it was preparing itself for such an event and has pro-actively been securing leases ahead of the referendum. This is evident in an increase in average lease expiry term of properties in its UK portfolio from 7,5 to 8 years which equates to a saving of £0,3 million in vacancy costs.

A diversification approach into other country markets is also evident from other SA companies and listed funds. Supporting this trend is South Africa’s largest listed property fund, Growthpoint Properties, expanding its portfolio in Australia via its subsidiary called “Growthpoint Australia” with an estimated value of around R800 million. CEO Norbet Sasse sates to Business Day Live that Growthpoint Australia is on track to achieve strong earning and distribution growth where in contrast, “the South African market remained difficult.”

Placing Brexit into Perspective of the Economy

Further placing the potential challenges presented by Brexit over the long term into perspective of South Africa’s current economic climate, Baker Street Properties Director Dave Russell is of the opinion that there are more significant global issues influencing the SA property market:

“We anticipate the economic risk posed by Brexit on SA property and the economy to be no greater than other more pressing issues such as global debt, deflation and local currency devaluation”.

These sentiments are echoed by RE/MAX Southern Africa CEO Adrian Goslett, stating that the impact of predicted rise in interest rates on the potential home buyer’s affordability ratios and depreciating currency is of greater concern.

Potential “Brexit Bargains” for SA Funds and Investors

London Property

The fallout from Brexit may potentially create opportunities for the listed property sector in terms of consolidation. Following the trend on diversification and hunting for assets abroad, listed property funds could potentially pick up a few bargains in the UK as its property market starts to slow down. In particular, Residential property in London has traditionally required investors and home owners to dig deep into their pockets. However, new market dynamics could present some opportunities to those who would like to take advantage of the predicted lower property prices. International Real Estate firm JLL (also international affiliate to Baker Street Properties) supports this, stating on its Real Views Blog that: “The initial correction may be the most severe but should be followed by an upturn as opportunities re-emerge in the UK core markets and benefits of weak Sterling are recognized.”

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