Real Estate

Berkeley plays the housing game


When housebuilders’ shares are doing well, it is entirely down to their management — not the government. When housebuilders shares are doing less well, however, it is the fault of government, planning policy, mortgage regulation, whatever — never their own doing. That is certainly how it can seem. And statements from Berkeley Group — at first glance — appear to embrace this contradiction.

On Monday, the company responded to reports that its chairman had earned £174m in 10 years on the back of a share price inflated by state subsidies by arguing it was actually down to its “sustainable, successful business model”. But, on Wednesday, it was complaining that the past four months — in which it share price has fallen 15 per cent — had seen its core London market held back by “high transaction costs, restrictive income multiple limits on mortgage borrowing and prevailing economic uncertainty, accentuated by Brexit”. And we all know who’s responsible for that.

Can Berkeley have it both ways, though? Well, unlike the hollowed out basements of so many prime London houses, its complaints are not without foundation. Stamp duty and other transaction costs have doubtless affected “all segments of the market from home movers to downsizers and investors”, as Berkeley claims. Planning delays and restrictions will inevitably impinge on its idea of “a functioning housing market, where good new development can deliver much needed additionality”.

Still, it seems a bit rich for Berkeley to moan that the government is now standing in the way of “additionality”, when it has added millions to its market value and to its directors’ remuneration without having to build many additional homes or take additional risk — largely thanks to state support of house prices, through such schemes as Help To Buy.

Nor is there much evidence of London’s constrained market hitting Berekely terribly hard. If at all. On Wednesday, the company made no change whatsoever to a previous forecast of £3.4bn in pre-tax profit for the five years to April 2021, despite that litany of new complaints.

So what is behind these apparently mixed messages? Arguably, they are not so much contradictory as designed for completely different audiences.

Pointing out the role of government in gumming up the market can be politic when that same government is trying to force private builders to hit its own housing targets. Pointing out the role of management in hitting its own profit targets can be equally politic when facing a vote on executive pay.

Judging by the votes in favour at Berkeley’s shareholder meeting on Wednesday, at least one of the audiences liked what it heard.

IPOs: fair enough?

Those wading through the bumf issued by recent flotation candidates Aston Martin and Funding Circle may have spotted a new document thudding on to their doormats, writes Jonathan Ford. Actually, it’s not that easy to miss, being several hundred pages long.

New rules from the Financial Conduct Authority now oblige those seeking a listing to publish a “registration document” — a sort of pre-prospectus — well before the initial public offering happens.

It’s all part of a new crackdown on companies and their bankers hogging information. As well as this tome, they must also give unconnected analysts the same access to information received by the selling syndicate. That means letting these potential loose cannons either attend the same company meetings, or obtain transcripts of those between insiders and top management.

The idea is to bring some fairness to the IPO process. So, instead of a selling syndicate just banging out the prospectus the day before the IPO and confining access to info to friendly analysts, all and sundry should now have an opportunity to comment before the shares are sold.

We all like fairness, of course. But the changes these rules will bring is not clear. Part of the impetus came from the Royal Mail privatisation in 2013, which was thought to have been underpriced, and thus offered huge short term gains to the buyers. Will the new rules mean higher selling prices then? Or fewer duff candidates coming to market as they are exposed to the Sauron like gaze of the unconnected analytical community? Who knows.

Another uncertainty surrounds the size of selling syndicates. It used to be that the lead bank roped in virtually every other firm in the market to drown out discordant voices. But will more informed naysaying encourage them to redouble their efforts, signing up every two-bit broker between Land’s End and John O’Groats? Or will syndicates shrink back to the numbers actually needed to sell the shares?

The first wave gives no clear answer. While Funding Circle has slimmed down the ranks for its flotation to four banks, Aston Martin has gone in the other direction: it has 12 on its lists.

matthew.vincent@ft.com

jonathan.ford@ft.com



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