Property Stocks Profit from Last Minute Purchases

Property and housebuilder stocks have seen share price losses year to date, but profits are up thanks to a rush to buy before a tax hike in April

Karen Kwok 12 May, 2016 | 10:38AM
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Profits of property service and house builder companies are up – thanks to a spike in activity ahead of the introduction of the new stamp duty levy on buy-to-let purchases and second homes introduced last month.

Property adviser Savills (SVS) on Wednesday revealed the UK prime residential market has performed ahead of its expectations, sending its shares up 2.06% to 766.50p the end of the trading day on Wednesday. However the stock has lost 11.3% year to date.

Consultancy and property management of the company have performed well, Savills added, with particular strength in the UK and Asia, while Savills’s Investment Management unit has grown in line with forecasts.

Dan Nickols, manager of the Old Mutual UK Smaller Companies fund said in February to Morningstar that Savills is trading at a meaningful discount with a potential growth , saying: “It's got a well-known business, a very well-run business and it's active in a range of property-related spheres from transaction advice, to agency work, to facilities management as well.”

Housebuilders Profit Growth

Several UK homebuilders also delivered higher than expected improvement in performance for their full financial year, driving by a boost in consumer demand thanks to an increase competition in the mortgage market.

Barratt Developments (BDEV) on Wednesday said its market conditions have remained strong in the first few months of 2016, putting it on track to deliver the expected improvement in performance for its full financial year. It had achieved total forward sales of £2.84 billion, an increase of 9.7% from a year earlier with £2.59 billion. The stock has down 1.1% to 524p and it lost 13.8% year to date. 

Another housebuilder Taylor Wimpey (TW.) also signalled further growth in profit in 2016. The company said in April that in the first four months of 2016 customer demand was up 14% in comparison to the same period last year.

The company will pay a final maintenance dividend of 1.18 pence a share for 2015, down from 1.32p per share a year earlier. It is also going to pay a special cash dividend in July of 9.20p a share, as previously announced, up from 1.54p in July 2015. The stock has lost 9.5% year to date, however it gained 2.2% in the past year.

What Does the Future Hold for the UK Housing Market?

The latest Halifax House Price Index revealed this week that UK home sales jumped from 116,930 in February to 165,460 in March, the highest monthly total since records began in April 2005. Much of the monthly increase is likely to be attributable to a rush to beat the new stamp duty tax rates for buy to let and second homes in April. 

The report also unveiled UK house prices in the three months to April were 1.5% higher than in the previous quarter, however halving from 2.9% in March.

Despite the annual rate of house price growth eased, Halifax housing economist Martin Ellis predicts house prices continue to soar.

“Current market conditions remain very tight as the severe imbalance between supply and demand persists. This situation, combined with low interest rates and rising employment and real earnings, should continue to push house prices up over the coming month,” Ellis said.

The London new mayor Sadiq Khan is another driver to bring new momentum to the housing market going forward: as he promised to save the city’s housing crisis by increasing house-building in London, helping to boost the historically low supply of UK houses.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barratt Developments PLC609.40 GBP0.00
Jupiter UK Smaller Companies L GBP Acc6.41 GBP1.21Rating
Savills PLC1,358.00 GBP0.00
Taylor Wimpey PLC146.15 GBP0.00

About Author

Karen Kwok

Karen Kwok  is a Reporter for Morningstar.co.uk