26th Feb 2024 11:40
(Alliance News) - Shares in the housebuilding sector on Monday retreated after the UK competition watchdog launched an investigation into eight leading names in the sector.
Shares in Barratt Developments PLC fell 1.6% to 471.10 pence, Bellway fell 2.7% to 2,686p, Berkeley Group Holdings PLC fell 1.8% to 4,628p, Persimmon PLC fell 3.8% to 1,358.25p, Redrow PLC fell 1.7% to 652p, Taylor Wimpey PLC fell 4.0% to 140.10p, and Vistry Group PLC fell 3.1% to 993.50p.
Privately-owned Bloor Homes is also part of the probe.
The Competition & Markets Authority said it had "fundamental concerns" within the UK housebuilding market.
AJ Bell's Russ Mould noted a regulatory probe "is the last thing the sector needs".
"It is just finding its feet again after a tricky period for the property market as demand dried up thanks to higher borrowing costs".
Publishing its final report on the housebuilding market which followed a year-long study, the CMA said it found "that the complex and unpredictable planning system, together with the limitations of speculative private development, is responsible for the persistent under delivery of new homes".
The CMA said: "There are persistent shortfalls in the number of homes built across England, Scotland, and Wales, with less than 250,000 built last year across Great Britain - well below the 300,000-target for England alone."
It said that around 60% of all houses built in 2021 and 2022 "were delivered by speculative private development, which is when builders obtain land, secure planning permission, and construct homes without knowing in advance who will buy them or for how much.
This way of building homes has given builders flexibility to respond to changes in the market, the CMA noted.
Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown said a "major trigger" for the investigation is accusations that some major housebuilders are sharing confidential and commercially sensitive information relating to sales prices and sales rates.
AJ Bell's Mould explained there is an advantage to housebuilders if the balance between supply and demand remains tight.
"This helps sustain higher house prices and supports their margins," he pointed out.
HL's Lund-Yates said accusations of poor build quality and anti-competitive practice will be of more "immediate importance, as findings against either strike could lead to margin degradation in the short term, but this is far from guaranteed".
Liberum said it expected the report to most impact those builders focused primarily on private speculative housing.
The broker said Vistry, which has pivoted to a pure partnerships model, focused on mixed-tenure development, is likely to be least impacted by this report.
AJ Bell's Mould suggested housebuilders may also argue the proposed introduction of more red tape, including the establishment of a New Homes Ombudsman, will "clip the sector’s wings".
"However, previous issues around build quality and treatment of customers means they are reaping what they have sown", he felt.
By Jeremy Cutler, Alliance News reporter
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Related Shares:
Barratt DevelopmentsBellwayPersimmonBerkeley GroupRDW.LVistry GrpTaylor Wimpey