Since the Brexit referendum there has been constant talk of a collapse in the UK economy and a softening of house prices. It is fair to say that the recent house price boom has lost momentum and areas such as London are currently experiencing a significant fall in prices. However, up until just a few months ago the majority of UK housebuilders seemed fairly positive going forward.
Recent results are starting to cast a very different shadow across the UK housing market with recent results from Telford Homes, McCarthy and Stone and Berkeley Group offering food for thought.
Telford Homes
Specialising in the “more affordable” end of the London property market housebuilder Telford Homes recently announced an increase in revenue and a 35% rise in profits to £46 million. Interestingly, while some at the higher end of the London housing market show signs of fatigue it would appear that UK and overseas investors are still fairly positive on build to let investments.
It was interesting to learn that the average price of a Telford Homes property in London increased over the last year from £527,000 up to £539,000. The company also recently launched a new development in Stratford receiving 100 reservations in just three weeks. Figures show that 25% of these reservations came from British investors with the rest from Hong Kong and China. The company expects to top £50 million in profits this financial year which would be a 100% increase over the previous four years.
McCarthy and Stone
McCarthy and Stone is one of the U.K.’s best-known retirement housebuilders with well-documented exposure to the more mature buyer. The shares reacted negatively to recent results and the announcement that chief executive Clive Fenton would be leaving the company at the end of August. The group has already acknowledged a “noticeable decline” in reservations since the first quarter citing concerns about the economy and Brexit.
It will be interesting to see how this develops because the group is particularly exposed to the secondary housing market with many customers selling their existing homes before acquiring new properties. If prices are weakening and demand is drying up then this does not bode well for McCarthy and Stone in the short term. The company is forecasting full year profits to the end of August in the range of £65 million up to £80 million which does not compare favourably with last year’s £96 million figure.
Berkeley Group
Berkeley Group has performed admirably in the past due to its focus on the London property market which until lately has been relatively strong – compared to the rest of the UK. Pre-tax profits to the year ended April 2018 came in at £934.9 million which was a 15% increase on the previous year. The fact that revenues fell slightly over the period, compared to last year, led to the company issuing a statement that this “represents a peak for Berkeley”. The company is expecting pre-tax profits to be around 30% lower in the financial year ended April 2019.
There was a small level of mitigation in the fact that the company is benefiting from land acquired between 2010 and 2013. The fact that land prices are expected to return to “more normal levels” over the next 12 months may partly be behind what is in effect a profits warning. Demand for new homes remains relatively “strong” but property markets in London and the South East are certainly struggling. At a time when developers, investors and to a certain extent businesses are leaving London, this does not bode well for short to medium term London house prices. It looks as though 2018/19 will be a challenging year for housebuilders.