In short, the new build housing market has remained in decent shape over the last 3-6 months, while the second-hand market has remained subdued.
Sector share prices have largely followed this pattern, with the housebuilders up 5% in the last three months and estates agents down 2%. The last month has seen weak performances from both sub-sectors, down 4%.
Help to Buy & Leasehold concerns overblown
We believe concerns over HTB and the leasehold issue have been overdone, and that the risk to the new build sector from both is modest. We believe the Government will make changes to the HTB scheme (with modest cuts to equity percentages and house price limits), but that it will be extended out beyond 2021, maybe as far as 2027 (which the Labour party has suggested). On leaseholds, we suspect the Government will adopt the Nationwide Building Society’s proposals of ground rents being set at no more than 0.1% of the selling price, and any increase must be RPI or less. If this was the case, the impact on the sector would be minimal, although we suspect old leaseholds with excessive inflators will need to be rectified.
Housebuilders – no sign of margin pressures
Unlike previous cycles, land prices remain subdued due to the planning changes brought in by the Government. With house prices rising enough to offset the build cost pressures, the outlook for margins remains healthy.
Estate Agents not so lucky
Weak transaction volumes, ongoing fee pressure, and the threat of losing a chunk of income from lettings fees continue to weigh heavily on the traditional agents. The comparatives against 2016 transaction volumes have eased as we move through H2 2017, but there are few signs of any significant pick-up in activity.
Click here to view a short video on the note the Building & Construction team have published a note on the Housebuilders & Estate Agents.