The UK property market boom continues. This is evident in the performance of real estate companies and two of them released trading updates today.
The first is FTSE 100 housebuilder Barratt Developments (LSE: BDEV). The second is FTSE 250 real estate investment trust Derwent London (LSE: DLN).
Both stocks have run-up in today’s trading. While Barratt Developments is up by almost 2%, making it among the biggest FTSE 100 gainers, Derwent London is up by almost 1%.
Barratt Developments posts strong sales numbers
Barratt Developments reported 4.7% higher forward sales volumes than at the same time last year. The number was even higher at 9.8% in terms of value.
I think this bodes well for the company, which had already shown a robust half-year performance. For the first half of its financial year, ending December 31, the company reported a 10% revenue increase and even a 1.7% increase in pre-tax profits compared to the year before.
With its share price still below pre-market crash levels of March last year, I think it could continue to rise further.
Derwent london reports pre-tax profits
Derwent London also posted a robust update today. Some 93% of its rents have been collected for March, some of the strongest levels since the start of the pandemic. And also positive, vacancy rates are at a low 2.3%.
And it has reduced its net debt to £905m, while it has a strong liquidity position as well. This would be good news at all times, but at present, it’s even more so and these are prudent moves that can hold Derwent London in good stead. And it’s especially important as the company fell into losses last year, which gives it less wriggle room if a slowdown happened again.
Policies drive real estate market
A slowdown could still happen, of course, and it could hurt both companies. But I think that for now, the odds are in favour of property stocks. Just today, the Bank of England has said that the UK is set for its strongest growth since the Second World War. This should keep property markets buoyant.
Like Barratt Developments, Derwent London is yet to reach the share price highs of early 2020. But given the latest update and overall optimism, I think it could happen soon.
With the good though, comes the bad. In this case, for both firms, it would be the withdrawal of the stamp duty waiver and interest rates being likely to rise eventually. Supportive policies have played a big role in holding up real estate markets, so I reckon that some impact would be felt on the stocks as the situation changes.
My takeaway
I think it’s quite likely that any impact would be short-term in nature, however. Despite the withdrawal of supportive policies, there could be a natural demand rise as the economy takes off. I feel that the property market may well have managed to stave off a slowdown that accompanies a weak economy.
With that in mind, I’m bullish on both stocks at their current prices.