Not more than a week ago house price index data was released showing that asking prices were continuing to climb and had yet again reached a new record high with houses flying off the shelves (theoretically speaking). In an odd way London saw a price fall, but’s that a good thing.
The impact of a leave vote will take months or even years to truly realise yet that doesn’t stop people analysing. Zoopla was one of the first to note that house prices could drop by up to 20% - surely an amazing thing for those struggling to get on the housing ladder, yet devastating to those already on the ladder as LTVs plummet and interest costs rise. There must be a saying about what’s good for one is not for another. This reduction would take house prices back to 2011 levels and remove a lot of the exponential growth seen recently. The implications to Joe Blogg’s pension scheme will be unknown for a while, but I wouldn’t be surprised if it reduces marginally due to shattered investments in Persimmons, Barratts and Taylor – all three prolific dividend payers.
The instant effect on housebuilders was not unusual – markets do tend to panic but I wouldn’t have predicted a drop of c77% as Redrow experienced at one point before the industry bouncing back to around to 20-30% fall.
Step back though and the UK still has a significant under supply of quality homes in the UK and whatever your views on immigration this supply will not be amended overnight and most UK housebuilders have a strategy, according to annual reports and website announcements, to address the supply. Balance sheets were fixed over the last few years, debt has remained stable so this shockwave in the market should be temporary – though don’t expect growth in market capitalisation.
So where will we end up? Sadly I have no crystal ball. I think the falls witnessed on Friday were exaggerated but a fall is realistic purely due to uncertainty not aided by the lack of clarity yet provided by the Leave campaign – something that will hopefully reduce in time as further information is announced about what the deal will look like (sorry this may take 30 months!). My clients have already seen the impact with deals cancelled and developments pulled. House prices and transactions will be hit and a modest estimate would be at least 5% but hopefully not the 18% Remain suggested.
The areas of key thought need to be:
· Skills – immigration was a key top to the campaign on both sides and it is clear from the weekend that a significant number of people feel marginalised. The industry relies heavily on European workers. They won’t suddenly be deported in fact Julia Onslow Cole, PwC Global Head of Immigration, provides some useful advice within the following webcast which should reassure to an extent: http://pwc.to/1sxfEFD . The answer, well we need to continue the investment in the UK workforce but look at ways that the EU deal can still allow this work force still to be used.
· Investment risks – a number of development sites are only viable under a certain market scenario. We are unsure what will happen but there is a risk that some schemes will be scaled back or simply cancelled (which was seen on Friday – though largely from foreign investors running scared). Those with financial stability will prosper but those reliant on schemes will suffer and it raises the case for ensuring you diversify your risks.
· Future of projects – what does this mean for HS2, HS3 and large scale residential/commercial developments. Again no-one knows but it would not be surprising if decisions became slightly delayed. This is the time where the Government needs to support the UK by investing in infrastructure. I am against austerity but can see rationale in certain areas – here is an opportunity to support industries by funding these projects still which in turn will create opportunities for housebuilders.
One thing is certain: nobody can say for sure what will happen, but those who have planned and created a strategy for this scenario will take advantage of the opportunity created. Many feel sore and bruised by the decision and many in the industry were strong advocated for Remain, however what we must now do is come together to reunite this great nation and provided stability that the markets need.
Feel free to contact me 0113 288 2276 or lee.a.wilkinson@uk.pwc.com if you wish to discuss this blog or anything relevant to property and construction.
Enjoy your week
Lee
No comments:
Post a Comment