Berkeley shares plummet as it ‘pulls up drawbridge’ and stops buying land
Shares in leading housebuilder Berkeley plummeted on Wednesday after it paused housebuilding to protect its balance sheet against an “unprecedented increase in cost and regulation”.
The firm’s share price fell by more than 17 per cent shortly after markets opened, to a decade low, leaving the stock down 28 per cent this year at 2,832p.
The FTSE 100 firm welcomed the government’s housebuilding ambitions and recent emergency ‘Homes for London’ package, but said Labour’s targets are at odds with the economic environment.
Housebuilding firms have seen their shares jitter in recent weeks as a number of leading companies warned that the Iran war is making the property market more volatile.
Berkeley said on Tuesday: “This hugely positive activity for the economy and society requires considerable upfront capital investment which in turn requires a stable, predictable and supportive operating environment.
“Recent years have seen an unprecedented increase in cost and regulation, at a time of increasing interest rates and faltering consumer confidence, amidst prolonged geopolitical and macro-economic volatility and uncertainty.”
Housebuilder changes track amid ‘prolonged’ uncertainty
The housebuilder said it is still on track to meet its profit targets but has announced a “Berkeley 2035” strategy to shield against these external factors, which includes halting new land investment.
The firm will deliver a £450m pre-tax profit at the end of this financial year, it said, with around £300m in net cash.
Berkeley welcomed the government’s approval of the ‘Homes for London’ package, which loosened planning rules in the capital to stimulate housebuilding.
London has only achieved 10 per cent of the government’s housebuilding target for the city, Berkeley said, as part of Labour’s plans to build 1.5m homes by the next election.
But local authorities must make the most of the new measures with “pragmatic and flexible” implementation, the housebuilder said.
Iran war ‘weighs heavily’ on market confidence
Though Berkely said it has seen “modest” increases in sales in recent years, the Iran war “could reduce confidence in a near-term market recovery” because of the prospect of interest rate hikes.
Earlier this month, Berkeley said the Iran war is “weighing heavily” on market confidence and could push up inflation.
The firm’s “Berkeley 2035” strategy will see it focus on making use of the land it currently owns rather than expanding against an uncertain backdrop.
The company said: “In this environment, Berkeley does not believe it can make its required rate of return on investment in new land acquisitions.
“This is due to the continuous increase in the tax and regulatory burden on residential development, which other land uses do not experience, allowing them to pay higher land values.”
Chris Beauchamp, chief analyst at IG, said: “The warnings about the UK economy continue to filter through, Berkeley being the latest to sound the alarm.
“While it remains on track to hit targets, the move to reduce investment and halt new land acquisition is a sign of a company pulling up the drawbridge to await better times.”