Berkeley Group and Taylor Wimpey In Focus as Housing Prices in Britain Hit Record High

Summary

• The average housing prices were recorded at a new high in October at £323,530
• Rightmove has also revised its estimates for asking prices to rise by around 7 per cent by December 2020
• Berkeley Group and Taylor Wimpey shares have given an excellent double-digit positive price return since lockdown easing

The property market somehow continues to be on recovery path despite the ongoing economic crisis, which has affected the lives of millions with businesses closed, lost jobs and coronavirus restrictions. According to a leading property website, the average housing prices were recorded at a new high in October. As per the price index by Rightmove, average housing prices rose to £323,530. 

UK’s property market is currently witnessing a paradigm shift as the estate agents are listing more houses as sold than they have for sale for the first time ever. United Kingdom-based property portal, Rightmove Plc (LON: RMV) recorded a growth of 1.1 per cent month-on-month in property prices. In addition, Rightmove also recorded a growth of 5.5 per cent year-on-year in property prices, which was a ‘new record’ in the last four years. The number of sales agreed in September were up by 70 per cent year on year, according to the property portal. Rightmove has also revised its estimates for asking prices to rise by around 7 per cent by December 2020 as compared to its previous estimate of 2 per cent rise. The property portal witnessed a surge of 49 per cent in traffic year-on-year in September 2020.

Apparently, the boom in the housing market is fuelled by stamp duty holiday announced by Rishi Sunak, the Chancellor of the Exchequer, in his summer statement which meant buying a property of £500,000 or more could lead to tax benefits of £15,000 for first-time buyers.

Also read: Bonanza for the Hospitality & Housebuilding Sector in Chancellor’s Summer Statement

During the unprecedented crisis caused by coronavirus pandemic, households have doubled up as remote work locations. The people are now reconsidering their lifestyles and are factoring them in making informed choices as remote working in lockdown has become the new normal. Therefore, people are looking for that ‘extra space’ in households due to post-lockdown needs.

Homebuyers are not hesitant to shell out extra money ahead of any local lockdowns to trade up for more space and take advantage of the stamp duty holiday amid fierce competition in the market.

By the end of 2020, the housing market is expected to do well as the number of buyers contacting agents are still up by 66 per cent year-on-year. Industry experts believe that there could be more than £1 million-plus sales across the sector in 2020, in contrast to the previous year, despite the devastation caused by the pandemic and lockdown. The demand for quality properties marketed at the right price still outweighs supply. People are also looking to get more out of their money by moving to a more rural or affordable location, to work remotely provided the house is powered by broadband services.

Also read: Housebuilders Barratt, Persimmon Report Strong Sales Aided by Stamp Duty Holiday

Although the property market had picked up steam despite coronavirus lockdown restrictions, rising job redundancies and Brexit uncertainties, industry experts expect the curve to flatten out in the near term.

Let us put our lens through two prominent businesses in the housebuilding sector: Berkeley Group Holdings & Taylor Wimpey

• Berkeley Group Holdings Plc (LON: BKG)

Berkeley Group entered the financial year 2021 with a forward sale of nearly £2 billion and net cash of £1 billion. The release of pent up demand in the property sector was well supported by the ‘Help to Buy’ scheme and stamp duty holiday.

The management of the company is keen to resume dividend payments once they get more clarity on the uncertainties with respect to Brexit and second lockdown in sight. The next phase of lockdown due to the second wave of COVID-19 outbreak could result in lesser demand and shut down of operations.

During the peak of the coronavirus crisis in March, BKG shares created a new bottom of GBX 3,131. Since then, BKG shares have given a positive price return of more than 36 per cent.

• Taylor Wimpey Plc (LON: TW.)

The order book of the company for the first half increased by 15 per cent year-on-year with a value of £2,904 million (as of 28 June 2020). Despite the coronavirus crisis, the company managed to complete 2,771 homes during the first half of 2020. During the peak of the coronavirus crisis in March, Taylor Wimpey shares created a new bottom of GBX 101.50. Since then, Taylor Wimpey shares have given a positive price return of nearly 14 per cent.

The pent-up demand since the lockdown in March coupled with stamp duty cuts seem to have been fuelling the property market. However, mortgage repayment holidays, lesser interest rates and the furlough scheme have kept the sector going and has limited the impact of the catastrophe caused by the coronavirus pandemic. The flattening of the curve is expected to happen as the supply of homes along with the uncertainties around Brexit and coronavirus are likely to increase in the near term. However, the prevailing scenario in the property sector might attract a few overseas investors to invest in one of the most lucrative sectors of the UK.