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Summary
- Stamp duty holiday seems to have helped Barratt’s with over 20 per cent increase in sales rate
- Barratt’s number of home completions were up by 24 per cent since lockdown easing and it is targeting ROCE of 25 per cent in the medium-term.
- Since the beginning of July, Persimmon witnessed a 49 per cent increase in average weekly private sales rates and has reinstated dividend despite the coronavirus crisis
The British government unveiled stamp duty holiday and VAT cuts for the hospitality sector in July to kickstart UK’s economy. The Chancellor of the Exchequer, Rishi Sunak, in his summer statement announced stamp duty holiday and other support schemes, which were intended to provide a stimulus for the real estate sector after the lockdown was lifted.
One of the largest housebuilders in the UK, Barratt Developments Plc (LON: BDEV) witnessed a huge jump in sales post lockdown due to stamp duty holiday and the help-to-buy scheme announced by the government in order to provide a boost to the housebuilding sector. FTSE 100 listed Barratt Developments deals with developing residential property projects.
Restrictions in the real estate sector were eased in May and Barratt had resumed operations with enhanced safety guidelines. From July to 11 October, the number of home completions was up by 24 per cent to 4,032 during the same period the previous year. In addition, the company’s order book swelled to 15,135 homes with a value of £3.6 billion, up from 12,963 homes same period last year.
The increase in order book was helped by stamp duty holiday on sales of properties up to £500,000 until March 2021. The market has improved substantially after it came to a halt during the nationwide lockdown induced by the coronavirus pandemic with construction sites shut for several weeks from 23 March 2020.
Also read: Covid-19 Impact on The Nationwide Housing Price Index in Britain
Most of the new-build home orders were facilitated with the help of the government’s help-to-buy scheme. British lenders have taken a prudent approach and have raised the amount of deposits on mortgages. Financial institutions are expecting a decline in property prices and are fearing recession. As a conservative measure, these institutions are discouraging property mortgages with small deposits.
This has pushed the first-time buyers to opt for the help-to-buy scheme, which was initially introduced in 2013 and has been fuelling housebuilders since inception. Notably, the help-to-buy scheme shall be phased out in 2023 and would only be available to first-time buyers from April 2021.
The strong jump in sales recorded by the company would bolster the balance sheet and will improve its earnings in the near term. The shares of the company have outperformed the benchmark index, FTSE 100 in the last three months.
(Source: EODHD/Others, Thomson Reuters)
Barratt continued to witness strong customer demand for new high-quality homes, with over 20 per cent increase in sales rate. The housebuilder has been operating from 340 active outlets and has launched 33 new projects. The Construction activity has been in line with planned output for 2021.
The UK based housebuilder has been focussing on rebuilding completion volumes and targets a ROCE (Return on Capital Employed) of 25 per cent in the medium-term.
Based on the current market outlook, the Company expects to complete 14,500-15,000 homes construction by 2021, while improving upon customer service and quality. The management expects the company to face headwinds with respect to Brexit and unprecedented crisis. However, a strong balance sheet and disciplined approach will bring flexibility and resilience to tackle the turbulence in the trading environment.
Let us have a look at the performance of another prominent housebuilder Persimmon Plc, which has also witnessed strong sales surge.
Persimmon reinstates dividend as residential property sales surge
Despite the challenging trading environment, the FTSE 100 listed housebuilder, Persimmon Plc (LON:PSN) proposed an interim dividend of 40 pence per share. Persimmon’s operations had picked up steam and build rates were back at pre-Covid levels by the end of June 2020. Despite the unprecedented challenges caused by the coronavirus pandemic, Persimmon ended the first half of 2020 with nearly 5 thousand home completions along with significant improvement in customer service.
Since the beginning of July, Persimmon witnessed a 49 per cent increase in average weekly private sales rates per site year on year and has marked an excellent start to the second half of 2020. The company’s forward order book was up by 21 per cent to £2.5 billion in contrast to last year. The company had stated that it is well- poised to deliver 45 per cent of anticipated second half new home legal completions by the end of September. A solid start to the second half of 2020 was fuelled by company’s strong opening work in progress position and excellent build rate through the summer. The company has a strong balance sheet along with high-quality land holdings in its portfolio of assets. The shares of the company have outperformed the benchmark index, FTSE 100 in the last three months.
(Source: EODHD/Others, Thomson Reuters)
So far, Persimmon has covered a lot of ground in the second half of 2020. However, the rising number of coronavirus infections and Brexit uncertainties might create challenges for the company in the near term.
The bonanza for the real estate sector seems to have helped the housebuilders to recover substantially. The Government should create favourable policies and offer more schemes to support the sector because it is a significant contributor to the UK’s economy. Moreover, financial institutions should be slightly flexible in offering mortgages.
