While analysts continue to talk down the London property market Berkeley Group, a company with years of experience, has today suggested the market is actually stabilising. We all know that the Brexit vote last year will have some kind of impact on the London property market in the short to medium term but all the doom and gloom forecasts appear to be unfounded. So, what can we glean from the Berkeley Group trading statement?
Profits
The very fact that Berkeley Group profits for the year to April 2017 are expected to “come in at the top end of analysts’ expectations” says everything. This comes at a time when there is no hiding from the fact that the London property market has slowed. When you also bear in mind that Berkeley Group recently opened its first branch office outside London and the south-east for more than a decade, in Birmingham, perhaps the company was also concerned about the short to medium term Brexit impact?
You only need to look at the reaction of housebuilding share prices on the UK stock market the day after the Brexit announcement to see what the market expected. There was a massive downturn in housebuilding stocks although interestingly the vast majority have bounced back and are now higher than they were last year.
Note of caution
Despite the fact the company is confident in its ability to deliver short-term profits in line with expectations the London market has slowed since Brexit. During the last seven months, since the vote, reservations are down 16% although January and February sales were ahead of expectations and corresponding sales figures from 2016. It would be foolish to suggest that the UK property market is “out of the woods” but it would also be foolish to suggest it is on the verge of collapse.
Future outlook
Pre-tax profits for the year ended April 2017 are expected to come in at around £750 million although interestingly the company believes it will generate £3 billion of profits in the five-year period to April 2021. When you bear in mind this will cover the period during which Brexit negotiations will be intense and also the aftermath of any agreement this is certainly positive. Whether this forward thinking forecast pans out as expected remains to be seen but it is certainly a positive outlook on what is a tricky period for the UK real estate market.
A long way to go
The reality is that while Berkeley Group has released some very positive feedback from the sector we are about to enter the abyss when Theresa May triggers Article 50. A move of this magnitude has not been seen in recent times and it will be interesting to see how the talks progress. On one hand the UK property market has benefited from a weaker currency while on the other an improvement in economic growth in the longer term might reverse the recent currency falls but increase domestic demand.
The politicians and the experts can huff and puff all they like but we should give more credence to those operating in the housebuilding industry. While one swallow does not make a summer, many experts expect similar feedback from other leading housebuilders in due course.