Housebuilder on track to hit profit target two years early as central London property market remains strong
London-focused housebuilder Berkeley Group will hit an ambitious profit target two years early, it said on Monday, as it provided further evidence of the UK’s two-tier housing market.
While house prices drift across the UK generally, upmarket builder Berkeley said it would now double profits in three years, rather than five.
The success of Berkeley is testament to the strength of the central London housing market – 70% of Berkeley’s land is within zones one and two. Equally, the lack of mortgage finance that has led to weakness in the broader UK residential property market affects Berkeley less since many buyers are from overseas, and pay in cash. Berkeley said in its most recent annual report that 50% of its customers do not require a mortgage.
The average selling price for a Berkeley property is around £300,000, twice the national average.
“Overseas buyers see London as a safe haven, and Berkeley has a reputation for good quality properties,” said Gavin Jago of Shore Capital.
Berkeley’s moves will be closely watched by those seeking to read the runes of the domestic property market, with the group credited with having successfully predicted the downturn, pulling back from land purchases at the right moment before the credit crunch took hold.
Berkeley said on Monday that it had purchased a further seven sites, and had secured better planning arrangements on sites in Battersea and Kew in London, North Bersted in West Sussex and Gillingham in Kent. In the four months to the end of August forward sales grew further, topping £850m.
Berkeley plans to return cash to shareholders through a series of large dividends rather than using the cash to expand.
Analysts at Numis said the positive outlook was “testament to the strength of market conditions in London and the south-east, well-timed investment in land and work in progress and Berkeley’s ability to add value through planning and sales. In our view, providing market conditions remain stable, the group has the potential to continue growing profits.”
The company could however be hit by the recent falls in stock markets if London is hurt, Citigroup said: “Investors and overseas buyers are major customers for Berkeley and any undue [sterling] turbulence and difficulties with rental markets may affect them more than the industry,” the broker added.
Investors voted in favour of all the motions at Monday’s Berkeley AGM, with the largest vote against being registered at the reappointment of Victoria Mitchell, the company’s deputy chairman.
Shareholders representing 11% of the companies shares voted against her reappointment. Mitchell has been a non-executive for nine years, regarded by some as too long a period in order to maintain independence. The company takes the view that she nevertheless adds a great deal of value.
Shares in Berkeley finished up almost 5% at £12.36.
