UK housing/Berkeley Group: just vine

Gardeners around Britain have bedded down their plants for the winter. Similarly, its largest listed housebuilders await their own post-vaccination springtime. Each has its strengths. Affordability for the masses helps Persimmon bloom. Demand for luxury pads keeps Berkeley Group in clover.

The latter confirmed on Friday that profits this year would be flat. Decent enough, given the circumstances, but Berkeley still worries about a slow return to growth. The government’s pandemic economic support should end next year. That, in combination with Brexit, clouds the outlook.

Markets are not worried. Berkeley shares trade at 14 times two-year forward earnings, the priciest in a decade. Some investor apathy may be warranted. Previous governments have offered housebuilding direct support during any economic shocks. A quick recovery in the sector following the 2016 vote to leave the EU will rose-tint the market’s view.

Then again, Berkeley will not have benefited much from the current stamp duty holiday put in place over the summer. The average price of homes it sold in the six months to October was £799,000, above the £500,000 threshold. At least government support measures have bolstered residential prices overall. London property prices alone have risen more 4 per cent over the past year, according to Nationwide.

The pandemic has also brought investment opportunities. Berkeley has acquired plenty of new plots, mostly in London. Spending on land and working capital totalled £400m during the past six months. The purchases increased the land bank’s unrealised gross margin by 4 per cent to £6.7bn, think analysts at UBS. Should retail property prices fall, given the lack of footfall this year, more land opportunities could well appear next year as property funds become forced sellers.

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As with any experienced gardener, Berkeley will remain cautious until its business blooms properly. Any Brexit-provoked turmoil should provide those keen on the housing sector with their own opportunity to get a foot on the ladder.

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