Summary
- Given the economic uncertainties looming large, Housing prices are likely to go south
- CEBR has predicted that the average price of a house in the UK is likely to fall by around 13 per cent
- Some housebuilders in the UK have delivered double-digit growth in recent times
The outbreak of the Covid-19 has devastated the whole economy, and almost all the sectors, including the home construction sector, are under severe pressure due to it. Things seem to be tough, as the job redundancies have gone up significantly in recent times, which would eventually lead to a decrease in consumer spending. In such a scenario, the businesses involved in this sector could face a huge liquidity crunch.
Meanwhile, as the novel coronavirus continues to create havoc on the UK’s economy, the Bank of England has reported a huge dip in new mortgages from 15,800 in April to 9,300 in May. Moreover, people and businesses are struggling to pay rents which would eventually weigh down the property market and will surely take some time for the market to recover.
Given the economic uncertainties looming large with the spread of coronavirus pandemic, the homebuyers are delaying their plans to purchase new homes. Due to slump in business, rent collections for the property owners have also taken a hit, with many home tenants are unable to meet rent expenses. For the working-class, a large component of their salary goes into paying rents. The purchasing power of consumers and housing sales have dried up due to the virus outbreak.
According to the one of Britain’s top economics consulting firm, Centre for Economic and Business Research (CEBR), the average price of a house in the UK is likely to fall by around 13 per cent in this non-moving market.
Moreover, the Bank of England (BoE) also predicted a slump of up to 16 per cent in housing prices across the UK for the year 2020, in the wake of the coronavirus outbreak. However, the property prices are expected to rise in the long-term, once the lockdown fully gets removed, and economic activity is resumed back to normal, with a likelihood that the pent-up demand will be getting released.
Housebuilders in the United Kingdom are lobbying with the government for a dedicated emergency fund for the sector identical to the stimulus provided by the Scottish government. The loan amount offered under the Scottish government scheme was between 50,000 to £1 million at a fixed rate of interest of 2 per cent per annum and is expected to be repaid within 24 months.
Given the prevalent conditions in the economy, the housing industry seems to be sliding lower. However, some housebuilder stocks have managed to deliver double-digit returns in recent times. This has sparked a debate among market experts as the housebuilder stocks are going up despite a fall in prices of the underlying asset, questioning the real growth. Let us discuss some of the UK’s housebuilder stocks in brief.
Crest Nicholson Holdings Plc (LON: CRST)
Crest Nicholson Holdings Plc is the UK domiciled residential development organisation with a major presence in Coastal and Southern parts of England. The organisation has a varied home portfolio developed for first time home purchasers that also includes huge family-size homes.
In the first half of 2020, the company recorded a lower adjusted gross profit of £35.9 million due to lower land sale contribution and receipts impacted by Covid-19. The company cancelled dividend payments for the period. The company’s net debt has increased substantially to £93.3 million during the period. The company has additionally secured £300 million facilities under the CCFF scheme.
In the wake of novel coronavirus, the company has reduced the selling prices for residential units by 7.5 per cent. In addition, it has reduced the selling prices for commercial units by 32 per cent as well. In the first half of 2020, the company has completed 775 homes and added 422 plots due to controlled activity. As a part of its long-term strategy, the company has acquired 1,057 plots on 3 sites. However, the environment in which the company operates remains uncertain.
Though, the company has achieved a forward sale of 2,715 units as of 19th June. The company expects the net cash to be higher this year in comparison to the FY19. The company is witnessing positive signs since reopening. The percentage of cancellations is falling, and the appointments, conversion rates and footfall have increased since reopening.
The UK stock market was worst impacted due to the unprecedented crisis induced by Covid-19 during mid of March, and the lockdown was imposed by the government in response. Since then the Crest Nicholson group seems to have created a bottom and has delivered nearly 24 per cent of price return.
Persimmon Plc (LON: PSN)
Persimmon Plc is a leading British housebuilder and is headquartered in York, United Kingdom. The Group secured 1,351 gross private sales reservations, with a total of 1,300 legal completions being made in the eight-week period ended 10 May 2020 (according to its trading update). The company has reopened its sales offices in England on 15 May 2020, in accordance with the Guidance from the British Government regarding new social distancing norms and additional hygiene measures in place. However, the company is awaiting guidance from Scottish government for recommencing operations in Scotland.
Construction sites in England and Wales are operational with effect from 27th April. Nearly 65 per cent of the production capacity of the construction site had been restored.
The UK stock market was worst impacted due to the unprecedented crisis induced by Covid-19 during mid of March, and the lockdown was imposed by the government in response. Since then the Persimmon group seems to have created a bottom and has delivered nearly 50 per cent of price return.
Taylor Wimpey Plc (LON: TW.)
Taylor Wimpey Plc is a Wycombe, United Kingdom domiciled leading residential housing developer and real estate company having most of its operations in the United Kingdom. The company’ order book has swelled to GBP 2.7 billion in the first quarter of 2020, has more than 11,000 homes (orders), as per its latest release on 13th May. The company witnessed lesser cancellations and has been taking the orders remotely during the lockdown period.
The company’s sales offices were reopened on 22nd May. As of now, the construction is underway at almost 90 per cent sites across Wales and England. In addition, the company has extended the two-year warranty for customers due to the prevalent conditions in the economy. The company managed to sell 408 homes net of cancellations amid the lockdown induced by the unprecedented crisis.
The UK stock market was worst impacted due to the unprecedented crisis induced by Covid-19, and a lockdown was imposed in March. Since then the Taylor Wimpey group seems to have created a bottom and has delivered nearly 40 per cent of price return.
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