Riverlight residential apartment block development by St James, a home building unit of Berkeley Group, in the Nine Elms area of London © Bloomberg
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London-focused housebuilder Berkeley Group has warned that its bumper profits will begin to slowly decline from next year as tax reforms and political uncertainty weigh on the capital’s housing market.
Despite this, chief executive Rob Perrins struck an upbeat tone on Friday as the group announced half-year results. “The world didn’t end after Brexit,” said Mr Perrins. “We did move forward, though everyone thought the London market would stop.”
Berkeley said it expected to make £3.3bn of pre-tax profit over the five years from May 2016, a figure revised upwards from £3bn.
It also reported a 36 per cent rise in pre-tax profits of £533.3m for the six months to the end of October, compared with the same period last year, while revenues rose to £1.6bn — up from £1.4bn.
Investors welcomed the news, pushing the group’s shares up 8.6 per cent in early afternoon trading.
Mr Perrins said Berkeley was unconcerned by data suggesting house prices were falling, adding that its peak had been powered by a large area of land bought cheaply in the years after the financial crisis.
In September, house prices in London fell for the first time since 2009 as Brexit-related uncertainty and slow wage growth took their toll on property prices.
The group’s sales were up over the six months, with 2,117 homes sold at an average price of £719,000.
As politicians struggle to contain the housing crisis, Tony Pidgley, Berkeley’s chairman, warned that the political context for housebuilding was “turbulent”. Changes to stamp duty were damping transaction volumes in the London housing market and constraining “social mobility”, he added.
George Osborne, former chancellor, introduced a 3 percentage point stamp duty surcharge for purchases of additional homes in April 2016 as he sought to curb growth in the buy-to-let market.
Mr Pidgley said new policies, such as simplifying the system of payments that developers make to local authorities to help fund local infrastructure, were “crucial” to support the London housing market.
“We should remember, above all, that housing is not a numbers game. Fundamentally, it is about people and community. I believe it is perfectly possible to deliver for our shareholders and for society,” said Mr Pidgley, adding that the only way housebuilders would win “public trust” and “sustained political support” would be by delivering “fantastic outcomes”.
Anthony Codling, an analyst at investment bank Jefferies, said the comments from Mr Pidgley — who received a £29m bonus for 2016-17 — suggesting that “where there is stability we can bring growth”, came across as “very Francis of Assisi”.
Mr Codling added, however, that demand for Berkeley’s homes in London were likely to outweigh macroeconomic uncertainties and that the group would probably hit its targets for 2021.
Charlie Campbell, housebuilding analyst at Liberum, said the “excess” profit margins had been driven partly by the strength of London’s housing market until 2016.