“Tis the season to be jolly careful,” the once ebullient Boris Johnson cautioned the nation, confirming the second lockdown would end in tiers.
But investors would be forgiven for thinking Yuletide had arrived early, reading the year-end round robins from a swathe of housebuilders.
Trading updates from Taylor Wimpey, Vistry, Crest Nicholson and Countryside Properties, among others, indicated this year’s profits would be near or above the top of the range of analysts’ forecasts. Cash piles were almost uniformly healthy and dividends back. Shares in housebuilders had risen 28% during November, but bungeed up and down and have lost half of that amid Brexit shivers in December. And bids are back, with retirement developer McCarthy & Stone, estate agent Countrywide and now its rival Hunters being hunted. For fund managers and corporate financiers at least, it’s beginning to look a lot like Christmas.
Only nine months earlier, the same builders had withdrawn financial guidance and many were scrambling to secure every penny of cash as the horrors of Covid loomed.
But there is an element of making hay while the unseasonal sun shines. The upgrades reflect pent-up demand and delayed sales being completed; Rishi Sunak’s stamp duty holiday; a rush to complete Help to Buy (HTB) deals before the support package is pared back; and migration to bigger and more distant homes.
But could investors end up looking foolish on 1 April? That’s the day after the stamp duty holiday ends and HTB becomes restricted to first-time buyers, with lower regional price caps. It will almost certainly mean a fall in activity in Q2 2021, but I agree with recent Zoopla analysis that the hangover should dissipate as the year progresses.
A return to the old stamp duty bands will not in theory have much impact: tax on the average housebuilder’s home, priced at around £300,000, would amount to £5,000 – less than the 2% minimum most developers budget for ‘incentives’ even in good times. One housebuilder is mulling (that’s enough puns) paying the duty, I hear.
But there could be a double impact on pricier new homes as progressive ratcheting of higher tax bands and a deals slowdown in the secondhand market affects the sale of bigger, new homes.
The new HTB restrictions will affect, at a rough guess, no more than 10% of total sales – again, something marketing managers could weave into their arsenal of incentives. This would put a bit of pressure on margins, at a time in the cycle when they are gently trending down anyway. But builders will merely reflect that in lower bids for land, which eventually supports margins two or three years down the road.
Two more huge imponderables are the long-term economic impact of Covid and Brexit. Don’t underestimate the ability of governments and economies to duck and dive and the power of borrowing and falling exchange rates to mitigate, for instance, punitive tariffs.
Heck, if we are nimble-footed enough to get the BioNTech vaccine at least a month before the poor old Germans who invented it, we can manoeuvre against anything the French can throw at us. After a grim 2020, reprising one of Boris’s predecessors, things can only get better.
Alastair Stewart is an equities analyst and consultant