Home Prices to Fall in the UK, But There’s Light at The End of The Tunnel!

Homebuyers are postponing their plans to purchase new homes, given the economic uncertainties looming large with the spread of corona pandemic.

Rent collections for the property owners have also taken a plunge with a large number of home tenants unable to meet rent the payment requirements due to the prevalent job losses. For most of these people, a large part of their salary goes into paying rent, hence the fall in rent collections has come about.

The Center for Economic and Business Research (CEBR), one of Britain’s top economics consulting firm, predicted the average UK house price to fall by around £30,000 in this non-moving market. Housing sales are at a standstill with movement restrictions and falling incomes due to the corona pandemic. Property sales worth £82 billion are on hold after the lockdown, as per property website Zoopla’s calculations, with more than 4.5 lakh home buy and sell transactions remaining pending.

Bank of England, UK’s central bank, also predicts the UK house prices to fall by up to 16 percent for the year 2020, due to the corona led lockdown across the nation. However, the property prices are expected to rise in the long-term, once the lockdown gets removed and economic activity is resumed, with a likelihood that the pent-up demand will be getting released.

This is supported by the fact that UK’s online property firm Rightmove’s report that there is a rise in rental and sales enquiries since mid of May 2020, even when the market has not seen many new property listings. Mid May is important, as UK Government announcement came on May 13, allowing home-transaction related travel, despite the lockdown. Visits to property dealers and homes were permitted, provided social distancing is being adhered to.

Housebuilders are hopeful that once the corona-led uncertainty is cleared and people resume work, as usual, the halted housing market will recommence operations. It is time to have a closer look at the financial health of a few popular housing-related companies now.

Barratt Developments PLC (LSE: BDEV)

Barratt Developments PLC (LSE: BDEV), it is UK’s largest housebuilding company. For the past three months, its share price saw the lowest of GBX 364.7 on 19 March and last traded at GBX 497 on May 29.

Barratt: Half-year results for the six-month period ended 31 December 2019

(Source: Company Financial Report)

The revenue of the company moved up to £2,266.2 for the half year period of July to December 2019, up by 6.3 percent as compared to same period in 2018. Barratt displayed a healthy return on capital employed (ROCE) at 29.3 percent for the year ending December 2019. It also delivered its highest half-year home completions in the past 12 years with 8,314 total completions during July to December 2019. The company is entitled to receive funding under Covid Corporate Financing Facility (CCFF) if needed. The company had announced that it had resumed work on its 180 building sites from 11 May, around half of the total.

Rightmove PLC (LSE: RMV)

Rightmove is the largest online property portal in Britain. It displayed a good ratio of free cash flow to sales at 63.4 percent for its financial year ending December 2019. Its’ revenue for 2019 was £289.3 million, higher by 8 percent as compared to 2018.

During the past three months, its share price was lowest on 23 March at GBX 400, after which it started recovering and has been moving up steadily to reach GBX 586.4 on May 29 this year.

Starting the month of April this year, Rightmove has been discounting its invoices by 75 percent for the next four months; this is likely to bring its revenue to £75 million for the January to December 2020 period. The company has also announced dividend cancellation worth £38.3 million in March this year.

Berkeley Group Holdings (LSE:BKG)

Berkeley Group, a leading British property developer, has performed well during the past few years and continues to do so. It achieved compound earnings per share (EPS) of 6.5 percent for the past five years. The company’s shareholders have received an average return of 54 percent for the same period, which includes dividend payment. Despite the lockdown, Berkeley paid £125 million dividends on March 31, 2020.

In the passing three months, Berkeley Group’s share price touched the lowest on 23 March at GBX 3,131, after which it started to recover, moving up steadily to reach a level of GBX 4,095 on May 29, 2020.

Vistry Group PLC (LSE: VTY)

Vistry Group is one of the top five national homebuilding companies in UK. It has seen more than 250 home sales after the lockdown was imposed on March 23 this year. Net debt of the company was £476 million on 21 April 2020, and it has suspended interim dividend to its shareholders, with an announcement on March 25, in the wake of corona disruptions. On April 7, the company announced working on a contract to build 810 new homes in the UK. It is pertinent to note that the company was awarded a 5-star Home Builders Federation (HBF) customer satisfaction rating for the year 2019. The Group’s pre-tax profit was £188.2 million in the year 2019, up by 12 percent as compared to the earlier year 2018’s numbers.

During the past three months, the company’s share price dived to the lowest on 3 April at GBX 510. Since then, it has been moving up steadily to reach a value of GBX 764.5 on May 29. Consumer confidence is to watch in the company for the next three to four quarters. Vistry Group is operating 119 out of its 172 building sites at the moment and is expected to work at full capacity in the coming months. Though it is early to say about the long-term scenario, looking at the current trend, it does look promising.

With the ease of movement restriction for home transactions being allowed from May 13, property companies share prices have also been showing signs of improvement, despite the sluggish housing demand and people withholding their home buy plans for the time being.

Housing companies are trying to stick to their plans and taking the calculated decisions to sail though this slump period. Looking at the future of the sector, one needs to be patient to see if the expected housing bounce back comes around once the restrictions are completely over, and the economy is running normally.