Berkeley Homes has reported a 20% drop in reservations for new homes in the run-up to the EU referendum and has not launched any new schemes in London this year.
Aside from next week’s vote, the housebuilder blamed global economic uncertainty, higher UK stamp duty and the “policy shift against buy-to-let investors” for the sharp drop in reservations between January and May. Berkeley specialises in upmarket homes in the capital and the south-east, and currently has 77 developments, including 55 in London.
A spokesman explained that Berkeley “put less to market because their job is to sell at what they think is the right price”. To attract buyers, the company had said it would absorb the increased stamp duty at the top end of the market but has otherwise refrained from discounting. It said the market remained robust below the £1.25m mark.
This adds to evidence that Brexit fears are paralysing parts of the London luxury housing market. The market had already been cooling due to sweeping changes to the stamp duty regime, which made it more expensive to buy homes above £937,000. London’s luxury postcodes have seen house prices fall by as much as 11.8% over the past year, according to estate agent Stirling Ackroyd.
Berkeley’s chairman, Tony Pidgley, said the company supported a vote to remain in the EU, joining other housebuilders that are concerned about the upheaval and likely labour shortages following a leave vote.
He said: “The outcome of next week’s referendum on Britain’s membership of the European Union is significant for the UK’s housebuilding and property sector. London’s status as the world’s best big city is underpinned by labour mobility, cultural diversity and a constant influx of talent and investment from around the world, and the UK economy in turn is powered by the success of our capital city.”
Anthony Codling, analyst at Liberum Capital, said of the UK’s housebuilders, Berkeley was most sensitive to the referendum decision.
“Berkeley has the highest private average selling price and the highest exposure to central London, which means that it has the highest share of discretionary buyers. It has therefore most to lose from uncertainty in the wake of a possible leave decision, as the stock market has already figured out quite clearly. On the flip side, it should be the biggest beneficiary of a remain decision.”
Its shares dropped nearly 2% earlier and are now down 0.4% at £29.76. They have lost about a fifth of their value this year.
Despite the slowdown, Berkeley is still confident that it can deliver £2bn of pre-tax profits over three years, which assumes profits rise to £750m in each of the next two years. Its forward order book is up 10% to £3.25bn.
The company sold 3,776 homes in the year to 30 April, down 4%, at an average selling price of £515,000, down from £575,000 in 2015. The selling price is around twice that of other FTSE 100 housebuilders, reflecting its focus on the London market. The firm made pre-tax profits of £530.9m, down 1.6%.
Berkeley has launched a new design called the Urban House, a three-storey house with a private roof garden instead of a back garden. This allows it to build twice as many homes as previously on a site, at a time when demand for family homes in London outstrips supply by 13 to 1. The first homes of this prototype have been built at Kidbrooke Village in Greenwich, while others are under construction at Green Park Village in Reading.
Assuming the company hits its targets, Berkeley’s top executives are in line for a combined payout of up to £500m by 2021, one of the biggest ever handed out by a UK listed company. Pidgley received £23.3m in cash and shares last year and could pick up another £25m this year.
The firm’s results showed that Pidgley paid a further £378,593 to Berkeley in the last financial year for work done at his 16th-century home in Windsor. In 2009, he paid the firm £1.3m for improvements to the property. Chief executive Rob Perrins paid Berkeley £155,167 for work done at his home last year.
A company controlled by Pidgley’s son, Langham Homes, was paid a fee of £173,000 in the year to 30 April 2015 for identifying potential land purchases for the group, but did not receive any fees last year, although the firm continues to do work for Berkeley. Several directors bought London apartments from Berkeley in recent years.
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