Berkeley Group hits post-Brexit vote high

The possibility of a London house price crash has taken up plenty of column inches in recent months, particularly in the context of the Brexit vote. However, Berkeley Group Holdings went some way to allaying those fears today when it said that it believed the market in London and South East had stabilised.

What's more, the Home Counties builder gave an added boost to its share price and those in the wider housebuilding sector by revealing that its profits for the year to April will be at the top end of analysts' expectations.

The positive update took Berkeley shares closer to their level prior to the EU referendum, with shares up 6% at 3,134p. Other builders also benefited, with Barratt Developments and Bellway among those up by 2%.

There have been plenty of commentators ready to call the bursting of the London property bubble. In December, the annual survey of 48 leading economists by the Times newspaper found that the majority of respondents expected London prices to flatline or contract in 2017.

Some believed that London prices, which averaged about £475,000 at the end of 2016, could fall by as much as 10% in the capital this year.

There's no doubting that Brexit has had a major impact, with Berkeley reporting that reservations in the period from August to February were down 16% on a year earlier. However, this rate actually improved in the final two months.

The decline in reservations has been seen across all price points, with stamp duty changes another factor in the weaker demand.

Berkeley added that enquiry levels remain robust, with cancellation rates at normal levels and pricing continuing to be resilient and above business plan levels.

While it's clear that the market still remains vulnerable, Berkeley said a number of factors were helping the property sector. It pointed to the continued availability of mortgage finance at low interest rates, as well as favourable currency exchange rates.

Planning restraints have resulted in new housing starts falling by some 30%, a factor that Berkeley warned was a threat to London remaining the “inclusive and open global city” so important to the UK's growth and prosperity.

Today's update keeps Berkeley on track to meet its ambition to deliver at least £3 billion of pre-tax profits over the five years to 2021. Forward sales are expected to be in excess of £2.6 billion by the end of this financial year.

The update endorses the view of Deutsche Bank analysts at the start of this year after they highlighted tasty dividend yields, strong cash generation and 25% return on capital as good reasons to back the housebuilding sector.

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