Berkeley: back to the future
By 2020, the company could look rather like it did in 1990
To the barricades! Transaction taxes have crimped London’s high-end housing market and “will have consequential effects on . . . social mobility.” So says posh homebuilder Berkeley Group. It is hard to make sense of this pseudo-political howler. It is also unclear why investors in Berkeley should worry about the levies.
Because of its south-east focus, Berkeley is associated with the multimillion-pound apartments springing up along London’s south bank. That may be why the shares fell on news that reservations are down slightly from last year and that sales of pricier flats have been subdued lately.
Yet Berkeley’s average sale price in the last reported period was £506,000. Britons buying houses at that price pay £4,940 less in tax than they did 18 months ago. Changes in transaction taxes are usually capitalised into prices, so that should be positive for the company. Purchase taxes for investors will rise in April but that is unlikely to affect owner-occupier demand in London.
Berkeley shareholders should not be distracted by whinges about tax — or dinner-party chatter over house prices. Focus instead on two questions. Can anything derail the plan to return £1.5bn to investors by 2021? Given net cash and inventory (land and properties, valued at cost) stood at £2.7bn in October, the answer to that is surely no.
And what happens when the current housing cycle gives way to the next? Over a decade, Berkeley has made a staggeringly good bet on central London, buying land cheaply and watching as monetary stimulus helped propel prices. The company’s capital return plan will distribute the takings from this purple period. Minds are starting to focus on what happens next. A builder of flats and houses in London, the suburbs and the shires could still earn good returns. But it is unlikely to be the profit machine that Berkeley is right now.