Housebuilder Berkeley warns of hit to property market in the spring

UK housebuilder Berkeley has called on the government to make a cut in the tax on property transactions permanent, warning that the pandemic and Brexit still risked inflicting damage on a housing market that has so far emerged relatively unscathed from a year of economic turmoil.

The country’s homebuilders have been big winners from a reduction in stamp duty the government introduced in July to help the sector weather the economic disruption from the pandemic. However, the cut in the tax, which is paid by homebuyers, is due to expire in the spring.

“It’s proven that stamp duty is the most awful tax,” said Berkeley chief executive Rob Perrins. The holiday on the tax “should be indefinite”, he added.

The warning from Berkeley, which is a London-focused developer, came as the group forecast that its annual pre-tax profits would be about £500m, little changed from a year ago.

For the six months to the end of October, its pre-tax profits fell 16.6 per cent to £230.3m. The home builder’s revenues dropped 3.8 per cent to £895.9m, as it sold 1,104 homes in the period for an average price of £799,000.

Electrified by the reduction in stamp duty, and enjoying a surge of demand that had been pent-up during the spring lockdown, home sales and prices have climbed at record rates in recent months.

Under the Stamp Duty holiday, buyers are spared from paying tax on the first £500,000 of any home or land purchase. The previous threshold at which the tax kicked in was £125,000, or £300,000 for first-time buyers.

However, some fear the market will tumble in March when that holiday is set to end.

“The coming months will see further evidence of the impact of Covid-19 on the economy, including the impact of the second national lockdown and tapering of government support and stimuli,” Berkeley said on Friday.

The company is “very conscious of the cyclical nature of the housing market, the stability of which is closely linked to consumer sentiment”.

As well as continued fallout from coronavirus the market was likely to be hit by Brexit in the coming months, said Berkeley, which is working with its suppliers to mitigate the disruption.

Nonetheless, Berkeley reaffirmed that it would return £280m to shareholders this year.

Berkeley is being “sensibly cautious, not overly worried”, said Aynsley Lammin, an analyst at Canaccord Genuity, who added that the company’s net cash of £954m gave it some protection against a sharp downturn in the housing market.

Mr Perrins said the company remained committed to London, despite fears the pandemic would lead to an exodus from the UK capital as working from home allows people to seek larger, more affordable homes elsewhere.

Berkeley invested £400m in three London development sites during the period.

Tony Pidgley, Berkeley’s founder and regarded as one of the most astute readers of the London property market, died in June. He had been chairman of the company until his death aged 72.

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