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Summary
- Persimmon announced a second interim dividend of 70p per share to be paid in December
- Taylor Wimpey had revised its profit expectations following the rapid growth in the market fuelled by stamp duty holiday and Government's Help to Buy scheme
- The average price of houses was up by 7.5 per cent year-on-year and breached the £250,000 mark for the first time in October
London’s broader equity benchmark index FTSE 100 closed over 1.79 per cent higher on Tuesday as the investor confidence was up following the news about the much-awaited coronavirus vaccine. Pfizer and BioNtech found their potential vaccine to be 90% effective, which had no safety concerns so far. The development has not made the equity markets jubilant along with many sectors such as travel and housing.
The UK housing market has witnessed a substantial rise in the housing prices on average. According to leading property portal Rightmove, the average price of homes has soared to record high in recent times despite the pandemic uncertainty.
This year, the housing prices in the UK grew at the fastest pace since June 2016, according to mortgage lender Halifax. The average price of the home was up by 7.5 per cent year-on-year and breached the £250,000 mark for the first time in October in the last four years. However, Halifax predicts a slump in the market in the wake of a weaker economic backdrop and second lockdown in place. The price of a detached home was up by 6 per cent on average whereas the price of a flat was up by just 2 per cent.
The spike in property prices could be fuelled by the heightened prevalent demand, as the Chancellor of the Exchequer Rishi Sunak had announced a stamp duty holiday on properties up to £500,000 until March in his summer statement. Despite the economic fallout due to pandemic and the UK sliding into recession, the housing market has witnessed a sharp increase in house prices.
Also read: Are buy-to-let investors fleeing the UK property market?
Alternatively, with remote working and online classes being the new normal, people are looking to make lifestyle changes and seeking bigger houses with open spaces. Wealthy buyers seem to have pushed the prices of countryside properties up by 2 per cent in the September quarter compared with the previous quarter, according to the estate agent Knight Frank.
As a new lockdown regime is into force, the job losses could mount further. Most of the sectors have been under the pump since the spread continued unabated. However, the housing market has been doing well as September witnessed the highest number of mortgage approvals since 2007, according to the Bank of England.
Let us now put our lens through some housebuilders listed on the London Stock Exchange.
Persimmon Plc (LON: PSN)
Despite the significant challenges due to the pandemic, FTSE 100 listed Persimmon continued to perform robustly and is currently on course to deliver a good result for 2020. The company delivered a strong trading performance driven by a firm selling price during the second half of the year. The Group's gross sales levels net of slightly higher cancellation rates pushed the average private weekly sales rate for the period (1 July to 9 November) by 38 per cent.
The resilient demand for new build homes, followed by firm selling prices led to strong performance during the Q3 of 2020. The company had cash balances of £960 million at 31 October 2020. The group announced a further interim dividend of 70 pence per share which would be payable in December.
Notably, Persimmon is among the few housebuilders that have reinstated dividend pay-outs for their shareholders. Persimmon shares last traded at GBX 2,770.00 on 11 November. The shares were up by 13.02 per cent in a year’s time.
Taylor Wimpey Plc (LON: TW.)
One of the biggest housebuilders of the industry, Taylor Wimpey has revised its profit expectations following the rapid growth in the market fuelled by stamp duty holiday and Government's Help to Buy scheme.
The trading environment remains resilient and quick recovery of the housing market in the second half of 2020 is expected, with a backdrop of lower interest rates and stable mortgage lending. Despite the carnage caused by the pandemic, the company is on track to deliver FY20 results towards the upper end of market expectations following a good operational performance.
With the sites operating at normal capacity, the Company has mustered a strong order book in the light of resilient customer demand. Currently, the FTSE 100 listed housebuilder expects 2021 completions to be in the range of 85-90 per cent of 2019 levels. Assuming the market to remain stable, the company now expects to deliver 2021 operating profit materially above the top end of the current consensus range. Overall, the company possesses high-quality landbank along with a robust balance sheet which can help it see through the turbulent times.
Conversely, the company faces a significant risk of availability of raw materials and supplies due to Brexit-related uncertainties. The economic fallout induced by the coronavirus crisis in the UK might lead to a substantial fall in demand or tougher rules to avail mortgage facilities. Taylor Wimpey shares last traded at GBX 148.60 on 11 November. The shares were down by 12.56 per cent in a year’s time.
UK’s housing sector seems to be riding high on the back of stamp duty holidays and the Government's Help to Buy scheme. In addition, the lifestyle changes in the wake of the pandemic have influenced the perception of people towards homes. People are looking to buy countryside properties with open spaces. This phenomenon has brightened the prospects of the sector. However, the rapid boom in the sector seems to be short-lived as job losses could mount further in the wake of the second lockdown.
