5th Sep 2018 11:33
LONDON (Alliance News) - Berkeley Group Holdings PLC on Wednesday reiterated its profit guidance as well as concerns over a "non-functioning housing market" in London and the south east region of the UK.
Shares in the FTSE100 listed housebuilder were up 1.1% at 3,547.00 pence on Wednesday.
Berkeley Group said that current trading and a strong financial position has allowed it to reaffirm its pretax profit guidance of "at least" GBP3.38 billion for the 2016 to 2021 five-year period.
The company added that market conditions in London and the South East, its main areas of operations, have remained consistent in the first four months of new 2019 financial year to August 31.
The housebuilder first increased its earnings guidance from GBP3.30 billion in June while publishing its results for the year ended April 30, and attributed it to land sites acquired in the period from 2010 to 2013.
Back then Berkeley also warned that profitability for its current year ending April 30, 2019, would be down 30%, due to the subdued market and lower transaction volumes. Profit was predicated to return to more normal levels after 2019 financial year.
For the two year to April 2019, Berkeley expected to record pretax profit of GBP1.58 billion. In 2018 financial year alone, the company has recorded pretax profit of GBP934.9 million.
"Pricing has remained robust as there is demand for good quality, well located homes that enhance communities and meet the local housing need," Berkeley said.
In the four month period to August 31, Berkeley acquired five new sites, leading to the anticipation that net cash for the six months to the end of October will be above the year-end position of GBP687.3 million, subject to any large land transactions.
However, the company said that the London housing market "remains constrained by high transaction costs, restrictive income, multiple limits on mortgage borrowing, and prevailing economic uncertainty" due to Brexit.
"These headwinds affect all segments of the market from home movers to downsizers and investors alike. A functioning housing market, where good new development can deliver much needed additionality across all tenures, requires conditions for growth and low barriers to entry which are currently absent from the housing market in London and the South East," Berkeley said in a statement.
In June, the group pointed particularly towards the changes to Stamp Duty Land Tax since 2015 which affected home movers and buy-to-let consumers. For the former, the cost of moving became too high, and buy-to-let purchasers are impacted by the 3% surcharge and removal of mortgage interest deductibility.
For London itself, overall transaction volumes dropped by 19% over two years, and new starts were 30% lower than in 2015, according to Berkeley.
On Thursday last week, Bank of England revealed a drop in UK mortgage approvals, with the number of loans approved in July falling to 64,768 from 65,374 in June. Approvals were forecast to fall moderately to 65,000.
"As ever Berkeley has taken a swipe at the political environment and seems to be calling for both a cut in Stamp Duty and a return to risky, even sub-prime lending in order to reverse what it calls a "lack of urgency" in the London housing market. It is interesting that other large house builders in London have a less cautious view of the market and still seem to achieve sales," said Shore analyst Robin Hardy.
FTSE 250-listed housebuilder Redrow, which also has operations in London, reported on Tuesday a record pretax profit for the year to the end of June of GBP380 million, up 21% from GBP315 million the year before, on revenue that grew by 16% to GBP1.92 billion, from GBP1.66 billion.
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