Brexit decision shocks rand-hedge real estate counters

Rand-hedge property stocks such as Capital & Counties Properties, Redefine International, Capital & Regional, MAS Real Estate, Atlantic Leaf Properties and Intu Properties plummeted Friday after the U.K. voted to leave the European Union — dubbed "Brexit".

Wth investors anxious about how the move will dampen real estate sector, the decision by British voters to exit the European Union may have far-reaching financial consequences for South Africa and a negative impact on the economy.

“Brexit” vote took the markets by ­surprise, sending rand-hedge property stocks into massive sell-down on the JSE and London Stock Exchange (LSE).

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The pound quickly dropped to its lowest level in more than 30 years against the U.S. dollar as the U.K. voting results came in. It's now trading around $1.36 after previously trading at $1.50 on Thursday evening. Other European markets also plunged following the result, with many posting larger losses than the London markets.

UK-focused companies that saw a sizeable sell-down of their stocks in early morning trade on the JSE on Friday are Capital & Counties Properties (-17.47%), Intu Properties (-13.01%), Capital & Regional (-8.09%), Stenprop Limited (-7.15%), Atlantic Leaf Properties (-5.13%) and Redefine International (-9.18%).

The United Kingdom is the biggest single investor in the South African economy and with the massive uncertainty the UK about the actual impact of the leaving the EU, we can expect severe volatility in the markets and quite possibly a further slowdown in the economy, says Ortneil Kutama, SA Commercial Prop News Media Director

Property counters which invest in other parts of Europe were among the many casualties of the UK’s decision to pull out, with Schroder European Real Estate Investment Trust’s stock pulling back by 8.07%, MAS Real Estate’s share price down 4.29% and Sirius Real Estate’s share price down by 1.4%.

These rand hedge property counters, which receive 100% of their earnings in British pounds or Euro, were some of the JSE’s biggest money-spinners over the past three year — no doubt on the back of a weaker rand and an ongoing search for hard currency income streams.

With South African real estate’s total return tipped to barely beat inflation this year, fund managers are investing in real estate firms on offshore exchanges or buying into South African-listed firms that own properties abroad or have a dual listing.

The U.K. is the first country to vote to leave the European Union. Prime Minister David Cameron resigned after the vote, saying he will stay in the office for the next three months.

SA's Finance Minister Pravin Gordhan said the Treasury and Reserve Bank were monitoring events into next week. Government, labour and business would have to work together to stabilise the economy, reassure financial markets and inspire confidence in residents and potential investors.