Real Estate

Berkeley looks beyond London as Brexit bites and profits tumble


Berkeley Group, the London-focused housebuilder, announced a 26 per cent drop in pre-tax profits on Friday, as Brexit uncertainty and a sluggish housing market in the south-east weighed on the property sector.

In the six months to October 31 revenues slipped 1 per cent to £1.7bn compared to the same period last year, while pre-tax profit dived more than a quarter to £401m. But the company said the figures were ahead of expectations, and upgraded its full-year pre-tax profit guidance by “at least 5 per cent” while leaving its longer term profit guidance unchanged.

“We’re doing well in a difficult market. Pricing is stable and our cancellation rates have been stable,” said chief executive Rob Perrins.

The group’s exposure to luxury property in the capital has put it more at risk from a market downturn than peers with more regionally diverse portfolios.

Berkeley said political uncertainty and changes to stamp duty had hit the high-end London market in particular, which Mr Perrins said meant the group was “slightly down [on] where we’d like to be.” New housing starts — the number of properties on which construction had started — in the capital have fallen by almost a third since 2015.

To mitigate against a challenging London market, Berkeley’s land acquisition strategy has increasingly focused further afield, beyond the capital.

Last year the group launched a new division, St Joseph, in Birmingham, and all eleven of the sites acquired over the six months to October were outside London, two of which were in Birmingham.

“The speed [of the planning process] in Birmingham is a really positive. It does really contrast to London”, said Mr Perrins. Average house prices in Birmingham increased 6.2 per cent in the year to October, while London prices dropped 0.4 per cent, according to Hometrack’s UK cities index.

The group sold 2,027 homes in the period at an average selling price of £740,000, compared to 2,190 homes at an average price of £721,000 in the same period last year.

Berkeley also shored up its cash reserves, in part as a response to macro uncertainty, and now holds £859.7m compared to £632.8m a year ago, and £285.5m eighteen months ago.

“We are very cash rich. It’s a factor of where we are in the cycle. We have five sites which are incredibly large regeneration projects. But by nature we are taking lower financial risks, because of that macro risk” said Mr Perrins.

Over the period share buy backs rose by more than 100 per cent, with the group repurchasing £193.7m worth of shares.



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