Quite understandably, there’s a lot of tension surrounding Brexit and the potential impact of a no-deal exit on the UK economy. There’s plenty of sectors, from banking to retail, that face the prospect of diving profits as a result of a disorderly EU withdrawal. And another that comes into the crosshairs in recent sessions is housebuilding.
The Royal Institute for Chartered Surveyors (RICS) was the most recent voice to chime up last week. It reported 77% of respondents to its latest monthly survey have seen housing market activity suffer as a result of Brexit, a problem that’s causing both sellers and buyers to sit on their hands.
The figures prompted RICS chief economist Simon Rubinsohn to comment: “With little sign that the issue will be resolved anytime soon, it could prove to be a challenging spring for the housing market and the wider economy.”
Oases in tough times
Now I’m not going to simply pooh-pooh Rubinsohn’s note of caution. The broader homes market is indeed under pressure, and particularly so in London and the South East where home values have stagnated, or in some places, even reversed.
What I would say, though, is those suggesting housebuilders such as FTSE 100 constituents Taylor Wimpey, Persimmon and Barratt Developments have plenty to fear in this climate couldn’t be more wrong.
Sure, homebuyer demand may have dipped from the stratospheric levels we saw before the European Union referendum, but there simply aren’t enough existing homes to go around. And that continues to drive sales and profits across the newbuild sector, as evidenced by the steady flow of positive trading updates from across the sector.
What’s more, some of the industry’s big dogs believe that homes demand should continue to outpace supply irrespective of whatever kind of EU withdrawal the country embarks on. According to media reports, chairman of Homes England, Sir Edward Lister, spoke about the “massive shortfall” of homes in the UK in a presentation to real estate expo MIPIM last week.
In particular, Lister commented that “there is a massive demand for housing and people need to live somewhere. So ignore Brexit: the demand is there.”
10% dividend yields
Illustrating the resilience of the newbuild market, City analysts expect the three homebuilders I mentioned above to keep providing profits growth through the next couple of years at least. And thanks to an inadequate government housebuilding policy, I for one expect the number crunchers to remain upbeat on these companies’ bottom line further out, too.
I bought into Taylor Wimpey and Barratt on the back of their giant dividends — forward yields of 9.9% and 7.6%, respectively, smash the broader FTSE 100 average which sits closer to 4.5%. Meanwhile, Persimmon sports a gigantic corresponding reading of 10.5%. I remain convinced that the builders should still deliver exceptional shareholder gains over the coming years, and that their low valuations represent a great opportunity to dive in.