Hedge funds short London luxury homes
Hedge fund managers are taking short positions against the biggest listed provider of luxury London homes in a bet that weakening emerging markets will put the once buoyant sector into reverse.
A small group of funds are targeting the shares of Berkeley Group, the main listed proxy for new high-end London property, amid signs that Asian and Russian buyers are deserting the market.
Odey Asset Management, BlueMountain Capital Management and Anchorage Capital took short positions against the FTSE 100 builder in January, worth 2.2 per cent of its share capital, according to data disclosed to the Financial Conduct Authority.
The short positions run against analysts’ consensus that Berkeley is well positioned to continue growing — and indicate the hedge funds believe pricing and transaction levels for luxury London homes have further to fall.
The market for luxury London homes faltered last year after being driven upwards in the previous few years, partly by overseas buyers seeking a bolthole or a safe haven for their cash. Many foreign buyers have suffered from a weakening of emerging market currencies and an increase in stamp duty on expensive homes.
Prices paid per square foot for homes costing more than £1m fell by 2.7 per cent in 2015 after two consecutive years of 10 per cent rises, according to the data provider LonRes.
Anthony Codling, an analyst at Jefferies, the investment bank, said he had spoken to hedge funds looking to bet against Berkeley.
“They think overseas demand is falling away and there are pockets of oversupply in new-build homes, which will reduce selling prices for Berkeley and bring their share price down,” he said.
Berkeley’s shares have risen 25 per cent in the past year, fuelled by rising sales. The company declined to comment.
About 54,000 homes are planned or under construction in the most expensive areas of the capital, with most of these set to be priced at £1m or more, research by LonRes found last year — even though only 3,900 homes worth more than £1m were sold in these areas in 2014.
Mr Codling said he did not agree with the case for shorting Berkeley. The company’s shares are trading at 2.7 times book value after it set out a plan to pay out £16.34 per share in dividends by 2021.
“As long as investors get that cash return I don’t see significant downward pressure on the share price,” said Mr Codling.
Charlie Campbell, analyst at Liberum, said there were concerns that overseas buyers who paid deposits of 10 or 20 per cent on off-plan London flats might struggle to pay the balance on completion if their home currencies have since weakened.
But he noted that Berkeley sold to citizens of 60 different countries in the first six months of its financial year, according to its own trading updates. It may also benefit from increasing appetite for homes among institutionally-funded corporate landlords, who help to finance developments upfront.
“I understand the concerns, but betting against Tony Pidgley and the value he has created over the long term can be fraught with difficulty,” he said. Mr Pidgley, Berkeley’s chairman, served as managing director from the company’s foundation in 1976 until 2009.