Cracks Appearing
Lumio Spotlight
Smarter & Sharper in Just 3 minutes
This bulletin is from Lumio. Your Intelligent Wealth mentor.
Sign up to their weekly spotlight bulletin.
Berkeley Group, the London-obsessed housebuilder is finally losing its shine after a decade of glory. The group announced a 26% drop in pre-tax profits, as Brexit uncertainty and a weakening housing market ‘down-south’ weighed on the property sector.
What happened and why
Berkeley Group has arguably been the biggest beneficiary of the decade-long boom in London housing. Fuelled by low-interest rates, a shortage of supply, help to buy schemes and the overseas investment, London housebuilding has been like planting a money tree. When you see London’s riverside brands splattered in St. James, St. George or St. Edward it is Berkeley Homes reaping all the benefits.
But the belt is finally beginning to tighten, with the prospect of Brexit and an increase in Stamp duty causing a slide in London house prices. Consequently, Berekely has seen revenues slide 1% in what is fast becoming a troubled market. In response, Berkeley has shifted their traditional London-focus to the in vogue Birmingham market, where house prices popped 6.2% this year.
The takeaway
The potential perils of London are evident and the growing uncertainty of Brexit only applies further pressure to the brakes of overseas investment. Before we worry too much for the future of Berkeley, it’s worth noting their cash reserves have swelled to £860m compared to £632m just a year ago. They are increasingly using that cash to buy up more of its own shares and it has also committed to extending its annual shareholder return (dividends) of £280m to 2025. Those numbers will go a long way to reassure investors to stick around for the time being.
