Housebuilder shares have slumped since new cladding proposals were announced by the government in January, notes UBS, with the market seemingly assuming they will bear the cost.
News this week that developers of high rise blocks are facing an effective open-ended profits tax to cover the cladding repairs is “unhelpful” and unlikely to change that view, adds the broker.
The Department of Housing (DLUHC) has followed up its original plan with a new letter detailing how the Remediation Fund to cover the estimated £4bn cost will be financed.
Developers are expected to make appropriate remediation work on properties in which they were involved, at their own expense, notes UBS.
“The exact formulation is to be determined, but in essence, it includes: (1) raising of an initial "float amount", followed by (2) annual contributions going forward.
“The DLUHC is proposing this will be open-ended and variable in nature, being sized annually or semi-annually depending on needs.
“Sizing will be based on "historical profits or other market metrics (to be defined)", pointing towards another profit tax, akin to the Residential Property Developer Tax except the rate would be variable and open-ended.”
Companies that don’t participate will be excluded from government support across all building areas amounting to an effective trading ban.
The Home Builders Federation (HBF) has already questioned the legalist of the government’s stance given that material manufacturers are not included nor foreign companies and investment vehicles, though materials supply groups might receive their own separate proposals.
UBS adds that the sector has already shed £5.4bn in value since the original proposals were announced in January.
“This implies the market is pricing in that the majority of this cost will be covered by the major listed UK housebuilders,” added UBS.
Barratt Developments, which has shed 18% since 4 January, edged up 0.6% to 624.6p today.