Berkeley said that higher stamp duty has hit the luxury London housing market, sending its shares and other housebuilding stocks lower.
The upmarket housebuilder, which focuses on London and the south-east, said reservations for new homes were 4% lower between November and February, compared with the same period a year earlier. It sold 62 homes worth more than £2m each, a similar number to a year earlier, when the market slowed in the run-up to the general election.
Berkeley warned that Britain’s housing supply could be hit by what it called “one of the world’s highest property taxation regimes” along with planning issues, pointing to “sometimes conflicting policies”.
It said: “Transaction levels at the upper end of the housing market have been affected by the significant increase in transaction taxes over the past 18 months, which will have consequential effects on both social mobility and the supply of new homes.”
Purchases of homes costing more than £937,500m became more expensive after an overhaul of the stamp duty regime in December 2014. For example, the effective tax rate on a £2.1m property went up to 7.9%, an increase of £18,750. And from April, buyers of second homes and buy-to-let properties face a further 3% stamp duty surcharge.
The news sent Berkeley shares down over 2% to £31.85. Others have warned about a bubble at the top end of the London property market that is about to burst. Investment bank Morgan Stanley and investment firm LCP are predicting that prices for luxury flats will fall amid a glut of new-built properties.
However, Berkeley remains confident of achieving £2bn of pre-tax profits for the three years to 2017-18, and expects profits this year to be at the top end of forecasts. Analysts have pencilled in £509m, down from £540m last year.
The group stressed that despite “global macro uncertainty, including the impending UK European Referendum, underlying demand has remained strong”.
This week it reported progress on plans to build 1,100 homes for private rental as part of a 3,500 home development in partnership with the Greater London Authority in Newham in east London, Berkeley’s biggest rental scheme to date.
Shore Capital analyst Robin Hardy said: “It is clear that Berkeley is repositioning for a very different business profile, buying sites for flats in outer London boroughs and increasingly it would appear more sites for mainstream family housing with sites such as Ascot or Winchester.
“We would still expect the group to have a bias towards the more expensive end of the market, and these locations support that, and good margins can be made but the super-normal margins that London has produced and the very rapid pace of sales is likely to be very hard to repeat.”
In another sign that luxury housing schemes are struggling to attract buyers, more than 80 apartments on sale at Battersea Power Station in south-west London have had their asking prices slashed since the start of the year, according to the property firm Propcision.
Investors are particularly concerned about the Nine Elms and Battersea area, which is receiving a £15bn revamp, with new towers being built that critics have derided as the “Hong Kongification” of London.
But analysts at Jefferies said those selling Berkeley shares were picking the wrong stock: “The main argument of those shorting Berkeley shares is that there is an oversupply of high-value homes – those with a selling price greater than £2m – in the Nine Elms and Battersea area … Our position is that Berkeley is not overly exposed to that particular local market. Across its landbank, the average selling price is £575,000.”
The housebuilder has sold its development of luxury apartments in Nine Elms, Riverlight, and only has one other project in the area. Hardy said: “Berkeley was never likely to get caught out and problems with unsold homes in London is likely to be a problem for newer players who came much later into the London market.”
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