The muted response to Berkeley Group PLC’s trading update shows just how low expectations are in the City towards UK housebuilders at present.
The FTSE 100-listed housebuilder said reservation levels have fallen 35% reflecting the tough economic and political backdrop but the stark number was expected.
Russ Mould at AJ Bell said the update “surprised nobody,” but “a 35% drop in reservations tells you just how tough the housing market is right now.”
UBS said the “deterioration is consistent with others in the sector reporting sales rates over recent months.”
The sharp fall showed the recent interest rate hikes which have pushed up mortgage costs “are causing a relative lack of urgency among new buyers,” in the opinion of Aarin Chiekrie, equity analyst at Hargreaves Lansdown.
The company also bemoaned the planning system in place which Mould said “suggested the sector’s current travails are prompting some testiness.”
“That’s not to say such complaints aren’t justified given how under-resourced many local planning departments are,” he added.
But Chiekrie said: “Looking bigger picture, Berkeley’s London focus offers something different to peers, and demand in the capital’s likely to remain more robust than other areas of the country.”
“Add to the mix that the UK housing market’s suffering from a fundamental supply shortage, and the long-term picture doesn’t look so bleak,” he said
Richard Hunter, head of markets at interactive investor, thinks that Berkeley is, in some ways, “a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the South East, higher-end properties and the regeneration of brownfield sites in which it is well accomplished.”
He said the cash position remains strong, providing a potential buffer against a punishing background, and a progressive dividend policy seems likely to be followed.
But he cautioned it is “far from being immune to the wider issues of mortgage availability and affordability, planning bottlenecks, uncertain consumer propensity to buy and a cloudy outlook.”