London Homebuilder Warning Shows Property Market on Shaky Ground
(Bloomberg) -- The end of London’s long property boom is starting to ripple across the U.K.’s homebuilders.
Sales of fancier properties in the U.K. capital and its commuter belt in southern England are drying up at Crest Nicholson Holdings Plc., prompting a profit warning from the developer that caused shares to plummet. That comes after Barratt Developments Plc said that reservation rates are edging down and Bellway Plc’s operating margin narrowed for the first time in almost a decade.
High prices, Brexit uncertainty and tax increases are all combining to make buyers skittish. Crest Nicholson plans to counter the slump by ramping up bulk sales, selling off land and slowing down building rates. The company said Wednesday that chief financial officer Robert Allen will step down.
“We had suspected that all was not well at Crest,” Shore Capital analysts including Robin Hardy said in a note to investors. “The issue is the same as in previous warnings: A very tough market at higher price points -- especially beyond the limits of help-to-buy -- and problems completing sales where buyers also need to sell a house in the second-hand market.”
Crest Nicholson fell as much as 14.9 percent in London Wednesday to the lowest since March 2013, leading declines for homebuilders exposed to the U.K. capital. The shares were down 6.3 percent at 302 pence as of 10:21 a.m., bringing the drop for this year to about 44 percent.
Britain’s housebuilders have enjoyed a long boom since the global financial crisis, supported by generous government incentives, cheap credit and a ready supply of land. After years of price hikes that have vastly outmatched wage growth, that era is coming to an end as the government raises taxes on landlords and second-home owners while threatening to introduce a surcharge on overseas buyers.
Prices to Blame
While new homes have been insulated by government incentives, London’s second-hand housing market has been suffering for more than two years on the back of tax rises. The drop in transactions for used homes is now weighing on new homes too as chains of buyers and sellers take longer to be assembled and are more vulnerable to collapsing, Crest’s statement said.
“The usual autumn pick-up in sales volumes has not been evident during September and October, with many customers putting off decisions to buy whilst current political and economic uncertainties persist,” Crest Nicholson Executive Chairman Stephen Stone said in the earnings statement.
Read more on Bellway’s shrinking margins
Short interest in the U.K. homebuilders has spiked since Prime Minister Theresa May this month that the government would raise stamp duty on overseas buyers to help pay for services for the homeless services. At Barratt, it’s now almost 3.3 percent, the most in eight years. In recent weeks, hedge funds had taken some profit off the table at Crest Nicholson, with short interest falling from an annual high of 10.7 percent in July to almost 9.4 percent. Leda Braga’s Systematica Investments Ltd and Henderson Global Investors are among the firms shorting the shares.
Higher taxes for pricier properties and stretched affordability are pushing buy-to-let investors out of London to cheaper areas in the north of England, according to research published this week by broker Hamptons International. Crest Nicholson remains a strong house builder but it’s problems stem “mostly from its challenging geographical mix”, Liberum analyst Charlie Campbell wrote in a note to clients Wednesday.
Crest Nicholson’s decline this year is almost double that of peers, Peel Hunt analysts including Gavin Jago said in a note. “Bid speculation may increase if shares fall significantly below this level.”
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