UK’s property market hit by slump in European growth

Britain’s property market has been hurt by a slowdown in European economic growth and prospective homebuyers holding out for house prices to fall further because of the country’s chaotic attempts to leave the European Union.

While house prices have been rising across the country, prices in London have declined according to various indicators, hit by tax changes and Brexit.

Housebuilder Bovis said it expected to post a higher first-half profit after selling more affordable homes at increased prices and saw solid demand for the year, bucking the trend of a wider anaemic real estate market.

Bovis, which builds traditional homes from two-bedroom starter properties to five-bedroom family homes with a focus on the south of the country, excluding London, said it had started the second half with a strong forward sales position and expected a better performance in 2019.

Shares in the FTSE-250 listed company were 0.2% higher at 1,016 pence ($12.67). “Market fundamentals remain stable and despite the ongoing uncertainty surrounding Brexit, we continue to see good demand for our new homes across all our operating regions,” the company said in a statement.

Bovis has largely focussed on cash generation by selling its non-performing assets and increasing its use of part exchange deals to return to profitability. Such deals allow buyers to trade in their homes as part payment for a new property.

The homebuilder, which recently ended talks with Galliford to buy the builder’s residential unit, said it delivered 1,647 completed homes in the six months ended June 30, compared with 1,580 a year earlier.

Bovis, which recently ended talks with Galliford to buy the builder’s residential unit, sold 1,031 private units and 616 affordable homes in the first half.

The total average selling prices rose by about 3% to 270,000 pounds.

Kent-based Bovis said reining in costs and margin initiatives offset flat pricing and higher building expenses.

Britain’s third-largest homebuilder Taylor Wimpey warned in April that the rising costs of building materials would weigh on profit margins this year. Analysts expect Bovis to post pretax profit of 184.3 million pounds for 2019, according to Refinitiv Eikon. Jefferies analysts said they were comfortable with the top end of their consensus estimates.

“Bovis’ operational performance continues to improve with better customer satisfaction and quality helping to drive a better sales rate,” Peel Hunt analysts said.

Meanwhile, Barratt Developments’ efforts to cut costs by making changes to the design of the houses it builds will help the company to report annual profit that beats market expectations, the company said.

The company has also been reducing its exposure to central London in order to focus on outer parts of the capital where houses are more affordable for many Britons.

Britain’s biggest housebuilder expects pretax profit of 910 million pounds ($1.13 billion) for the period ended June 30, compared with 835 million pounds a year earlier.

Analysts on average expected full-year pretax profit of 883 million pounds, according to company compiled estimates.

“The main initiative has been to redesign and simplify our housing range,” Chief Executive Officer David Thomas told Reuters on a call.

“Back in 2016, we substantially reduced the number of house types. We reduced the roof pitch and height of the house. By doing that we were reducing the cost of build,” he added.

Thomas told Reuters he expected the company to exit central London by the end of the calendar year.

Barratt’s push to redesign its houses helped it guide to an operating margin of 18.9% for the year, up from 17.7% a year earlier.

Shares in Barratt, which have surged nearly 25% this year, gained as much as 1.4%, and nudged stocks of rival housebuilders higher on the blue-chip index.

“Barratt’s profitability is improving as it dials down exposure to a tricky London market, but it is worth noting that its margins are still running behind most of its peers,” said Russ Mould, investment director at AJ Bell.

Last month, blue-chip homebuilder Berkeley’s annual profit fell less than feared. On Tuesday, Bovis Homes forecast higher first-half profit as it sold more affordable homes.

British homewares retailer Dunelm Group expects full-year profit at the upper end of its forecast as more time spent indoors due to wet summer weather spurred shoppers to spruce up their homes. Dunelm joined the online retail bandwagon a few years ago and has not only benefited from customers spending more time online on bargain deals but has also managed to pull more customers into their stores.

Reuters