A Chinese buyer recently spent £200m on a London pad. So far this year home sales in the city are up an annual 19 per cent. And now Berkeley Group, the builder of swanky dwellings for the affluent, is returning an additional £455m over two years to shareholders. Good things happen when the country no longer risks falling hostage to the Labour Party’s hard left policies.

At first blush, Berkeley has played an eminently sensible hand. It showed caution by plumping up its balance sheet. Its cash position rose from £100m in 2016 to £1bn, as uncertainty about Brexit and the possibility of a Labour government pummelled UK confidence and real estate values. As these clouds have at least partially dispersed, it is disbursing much of these spare funds to shareholders. 

But returning cash by definition hints at caution: Berkeley is telling shareholders that they can better deploy the capital than it can. Not that the housebuilder is parsimonious; it had already committed to an annual £280m payout in dividends and buybacks through 2022. Its existing landbank will see it through this decade. But a true optimist would spend the money bumping up that pipeline in readiness for better times. 

Pin that residual wariness on fundamentals that are still out of whack. Affordability has improved a little but it will still take 13 years’ household income to buy the average London home; Demographia ranks it as one of the 10 least affordable cities in the world. As Liberum points out, London house prices are up 60 per cent on pre-financial crisis 2007; in Yorkshire (still a perfectly nice place) they are flat.

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Foreign buyers, accounting for a quarter of Berkeley’s sales, are inherently fickle. A combination of an extra 3 per cent stamp duty levied on overseas investors and slowing growth in China should damp appetites. At home, even a Conservative government cannot ignore pressure for more affordable social housing; this sits ill with the chic pads sold by Berkeley.

So just how cautious is Berkeley? Five-year gilts are trading at 44 basis points. Given the UK base rate stands at 75 basis points, that implies cheap money for wannabe home owners for quite some time to come. The fact that a housebuilder would rather give money back to shareholders than interpret cheap money as a spur to even higher housing prices is about as damning a sell signal as you could get.

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