Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
There is no doubt that the stamp duty holiday introduced by Chancellor Rishi Sunak was precisely the shot in the arm the housing market needed during the pandemic.
That’s not to say that the ill-effects of the enforced lockdown have been wiped out by the subsequent surge in sales volumes, but the release of pent-up demand can only have been spurred on by the Chancellor’s decision to give a stamp duty holiday on properties worth up to £500,000 until 31 March next year.
The question for the likes of Barratt Developments (BDEV) is whether it will have enough stock to meet demand. Downtime during lockdown saw the sector lose close to two months’ work, which has to have had a knock-on effect.
All operational sites were reopened by 30 June and while a two month shutdown is not as bad as other sectors have seen, analysts, assuming that the run rate of volume returns to only 90% of previous levels later this year and forecasting that 2021 volumes remain 5% below 2019 levels, say we can still expect available property volumes overall to have fallen by over 20% in 2020.
That comes at a time when demand has certainly gone the other way. The latest Rightmove survey shows the housing market has had its busiest month in a decade. Agreed sales in August were up 48% year-on-year and were even 20% above the previous monthly record set in March 2017.
Rightmove is insistent though that the surge in demand is not just down to the stamp duty savings, with sales agreed higher across all sectors of the market. In fact, while they’re up 29% in the first-time buyer sector, sales to so-called ‘second-steppers’ are up 38% and there has been a 59% rise in sales for far more expensive, “top of the ladder” homes, it said.
That ‘all sector’ impact is important too, because with the government’s Help to Buy scheme due to be phased out by 31 March 2021, the sustainability of the housing market will rely on movement throughout the entire sector, if the surge in sales is to be sustained in any way.
Importantly too, prices need to stay firm. Asking prices across the UK were up 4.6% in August, topping the 3.7% rise we saw in July. However, while the hunt for space and especially gardens, has had buyers house-hunting in far flung parts of the UK that they probably wouldn’t have looked at pre-pandemic, London has seen the other side of the story.
Properties in London have seen price falls of 2%. And that has taken overall UK prices down slightly, to £319,497. In its July report, Rightmove had the average UK asking price pitched at a record high of £320,265.
For Barratt, completion volumes for March to June were down 29% on the year before. And crucially, more than 80% of the 12,604 completions registered during that period took place before lockdown.
The lockdown also hit home elsewhere too. It placed a strain on the balance sheet - it ended the year with £305 million in net cash, against £766 million a year earlier - forcing the group to suspend its land buying activities for the time being. And in July it pulled final and special dividends for 2020 in order to preserve cash.
Barratt is keen to share its “cautious optimism” for the new financial year, supported by a strong forward order book of £3.25 billion, compared to the £2.60 billion it had at the same stage in 2019.
Although, it does have to be heavily caveated. Firstly by the fact that the end of the Help to Buy scheme is ending, which could see demand from those all-important first-time buyers drying up, and secondly, with the risk that job losses could mount.
Add to that the stamp duty holiday, which is due to expire in March, at the same time as the Help to Buy scheme winds down, and it could make for a tricky Spring 2021 for Barratt and its fellow housebuilders.
Brokers have mixed views about Barratt’s prospects. Most recently UBS reiterated its buy rating and raised its price target to 680p, from 625p, while Peel Hunt maintains the shares are a hold, but has cut its price target from 805p to 575p. Credit Suisse has not shifted its position from outperform, but has cut its price target from 685p to 630p. Jefferies International meanwhile, rates the shares a buy and has cut its price target to 645p, from 659p.
Barratt’s full year results are due out on 2 September.
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Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. When you are thinking about investing in shares, it’s generally a good idea to consider holding them alongside other investments in a diversified portfolio of assets. Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
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