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Highlights
- The UK housing secretary has taken an important decision to remove unsafe and dangerous cladding on buildings between 11 and 18 meters high (four to six storeys).
- The housing secretary said the UK government would take all possible steps to make the developer pay for unsafe cladding, including restrictions on future government contracts.
The UK housing secretary has taken an important decision and wrote to housebuilding companies in England and Wales to remove unsafe and dangerous cladding on buildings between 11 and 18 meters high (four to six storeys). In addition, the housing secretary said the UK government would take all possible steps to make the developer pay for unsafe cladding, including restrictions on future government contracts, solutions through the law, and the tax system.
Cladding is a new layer of material installed on the outside of a building to improve building appearance and insulation. However, the material used by the housebuilders in the making of cladding is highly combustible, leading to fire spread. The combustible cladding was responsible for fire spread when a fire broke out in Grenfell Tower block in West London in June 2017.
The property with cladding is highly risky, making them unsellable. Also, the cost to replace dangerous cladding is borne by flat owners, which cost an average of £50,000 or more per flat, leading to higher bills to fix unsafe homes. As a result, the UK authority is looking to take firms steps that will lessen the financial burden on property owners. Moreover, the authority has also extended the time limit from six to 30 years for leaseholders to sue builders over defective flats.
In a previous announcement, the UK authority has only included high-rise buildings above the height of 18m to fix unsafe cladding. However, the housing secretary’s decision to include small height buildings to remove unsafe cladding will impact the housebuilding companies. Many housebuilding stocks like Barratt Development Plc (BDEV), Redrow Plc (RDW), Taylor Wimpey Plc (TW.) are already trading under pressure after the announcement.
© 2022 Kalkine Media®
Let us look at FTSE listed housebuilding stocks that would be impacted:
Vistry Group Plc (LON: VTY)
FTSE250 listed housebuilding company offers properties of different sizes in the UK, and it sells its inventory under various brand names.
The company’s business reported excellent performance in the financial year ended 31 December 2021. It expects the adjusted profit before tax to increase by over 100% to £345 million (FY20: £143.9 million). Also, the forward sales position improved by 24% to £1.94 billion, which will help the company to deliver high revenue and profitability in the new financial year.
Vistry Group Plc shares were trading at GBX 1,105, down by 1.12% on 14 January 2022 at 14:18 PM GMT, with a market cap of £2,484.19 million.
Persimmon Plc (LON: PSN)
The company is engaged in housebuilding activities in the UK. It sells homes under the brand name of Charles Church and Persimmon Homes.
The company reported total group revenue of £3.61 billion for the financial year ended 31 December 2021. It completed a total of 14,551 new homes during the period and sold its inventory at an average selling price of £237,050. The current forward sales position stands at £1.62 billion. Following positive business growth and performance throughout the year, the company announced a dividend distribution of 235p per share to shareholders.
Persimmon Plc shares were trading at GBX 2,588, down by 0.77% on 14 January 2022 at 14:20 PM GMT, with a market cap of £8,324 million.
