High prices and Brexit hit UK builders

The end of London’s long property boom is starting to ripple across the UK’s homebuilders.

High prices and Brexit hit UK builders

By Jack Sidders and Neil Callanan

The end of London’s long property boom is starting to ripple across the UK’s homebuilders. Sales of fancier properties in the UK capital and its commuter belt in southern England are drying up at Crest Nicholson, prompting a profit warning from the developer that caused shares to plummet. That comes after Barratt Developments said that reservation rates are edging down, and Bellway’s operating margin narrowed for the first time in almost a decade.

High prices, Brexit uncertainty, and tax increases are all combining to make buyers skittish. Crest Nicholson plans to counter the slump by ramping up bulk sales, selling off land and slowing down building rates. The company said that chief financial officer Robert Allen will step down.

“We had suspected that all was not well at Crest,” Shore Capital analysts said. “The issue is the same as in previous warnings: A very tough market at higher price points — especially beyond the limits of help-to-buy — and problems completing sales where buyers also need to sell a house in the second-hand market,” the broker said.

Crest Nicholson fell almost 15% at one stage in London, leading declines for homebuilders exposed to London. They later pared much of the losses but they have dropped this year by about 44%.

Britain’s housebuilders have enjoyed a long boom since the global financial crisis, supported by generous government incentives, cheap credit and a ready supply of land. After years of price hikes that have vastly outmatched wage growth, that era is coming to an end as the UK government raises taxes on landlords and second-home owners while threatening to introduce a surcharge on overseas buyers.

While new homes have been insulated by government incentives, London’s second-hand housing market has been suffering for more than two years on the back of tax rises.

The usual autumn pick-up in sales volumes has not been evident with many customers putting off decisions to buy whilst current political and economic uncertainties persist,” Crest executive chairman Stephen Stone said.

Short interest — or bets taken on shares falling — in the UK homebuilders has spiked since UK prime minister Theresa May said the government would raise stamp duty on overseas buyers to help pay for services for the homeless.

Crest remains a strong house builder but it’s problems stem “mostly from its challenging geographical mix”, Liberum analyst Charlie Campbell wrote. Crest’s decline this year is almost double that of peers, Peel Hunt analysts including Gavin Jago said. “Bid speculation may increase if shares fall significantly below this level.”

Meanwhile, UK house prices grew at their weakest pace in five years in August.

The average price for a property was £232,797 (€264,997), the UK’s Office for National Statistics said. That’s just 3.2% higher compared to a year earlier and the smallest increase since August 2013. Prices in London fell 0.2% after stagnating for six months.

As Theresa May struggles to strike a deal before Britain’s formal divorce date with the EU, sentiment has further deteriorated as buyers wait for clarity on the future relationship with the EU.

The market will remain “lacklustre” over the coming months, with poor performance in London and southeast dragging down overall numbers, the EY Item Club said. It expects house prices to rise just about 2.5% this year and next as fundamentals for buyers remain challenging and the Bank of England raising interest rates.

- Bloomberg

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