The rating firm said that demand for luxury residential properties and commercial properties – the segments some Indian homebuilders have invested in – may remain weak at least over the coming six to 12 months as buyers postpone purchases and banks trim loans amid increased economic uncertainty.
Asking prices of London’s luxury residential properties have fallen by 5 per cent-20 per cent over the last few weeks by some market estimates. This is in spite of the British pound trading at all-time lows against the US dollar – foreign investors make up a considerable part of the demand for London’s luxury residential properties. However over the longer term, these risks may be moderated by the tight supply of new residential developments, particularly in Central London, owing to challenges in securing regulatory approvals on new projects.
Commercial property demand has also weakened, and in some instances, prompted investors to exit commercial property-focused investment funds. This has led to some funds freezing 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.
The agency said that risk to Indian homebuilders will depend on the extent leverage was used to fund their London projects, and whether project construction and marketing sales coincide with the ongoing market volatility. Homebuilders may choose to defer marketing launches until investor sentiment improves, cut prices to spur higher sales, or sell equity stakes in the projects to reduce leverage.