Thursday, 31 October 2013

Round-up │ 31 October 2013

House price inflation maintains upwards march, Nationwide, rising +1.0% in October from +0.9% in September, pushing annual rate from +5.0% to +5.8% • Office of Rail Regulation approves over £12bn of enhancements to Britain’s network, of which projects totalling more than £7bn do not yet have clear delivery plans or costs. ORR is giving Network Rail until March 2015 to work up efficient plans before approving the funds • Planning Minister Nick Boles steps up his calls to build more bungalows across Britain, so pensioners in larger homes can make way for young families, Telegraph • Recently floated estate agent group Countrywide raises profit guidance for both 2013 and 2014 in its second interim management statement, after delivering 12% increase in income.

Wednesday, 30 October 2013

Round-up │30 October 2013

Tata Steel could cut 500 jobs in its construction-focused Long Products division, due to UK construction steel market being half its 2007 level, despite significant London office development, Building • Countryside wins £150m council estate regeneration in Enfield, Construction Enquirer • Remember the "Harrods broom cupboard" going for about £80k in the 1980s? A "store room between First and Second Floors" (with WC and wash basin) on Kensington High Street  is being marketed for ... £150k by Rightmove.

Monday, 28 October 2013

Discounts track towards boomtime high

A revealing snapshot of the dynamics driving a strong - but possibly jittery - housing market is provided by the latest Hometrack survey. It recorded a 0.5% increase in house prices in October, a similar trend to most other price surveys. What makes the Hometrack one interesting is the various market dynamics it also tracks, such as the demand-supply balance. The number of new would-be buyers registering with estate agents increased by 2.0% during the month, while the number of properties listed declined by 1.6% (chart below).


The proportion of the asking price being achieved jumped to 95.2%, up from 94.7% in September and just short of its all-time high of 95.7% in June 2007. The proportion was highest in London, 97.2%, but all regions saw declines in the discount to asking prices (chart below). Prices in the capital rose by 0.8% over the month.
One contrasting feature was a nudge up in the time on the market, from 7.9 to 8.3 weeks nationwide, after eight months of steady declines. Hometrack attributes this to a possible combination of reduced quality in the stock of homes for sale and increasing sensitivity among buyers in the face of strong price rises and the widespread debate over whether or not this constitutes a “housing bubble”. Another reason (BI’s view) might be lead times in buyers receiving initial approval under the newly brought forward second phase of Help to Buy. 

Roundup │ 28 October 2013

Not a lot of news today or yesterday. There is bound to be speculation that this morning's storm will push up demand for tradespeople and repair materials, such as roof tiles as well as resolving power and transport disruptions. 220,000 homes without power according to BBC • Former Balfour Beatty CEO Ian Tyler has been approached by Support Services group Serco as candidate to take over same role, Sunday Times

Saturday, 26 October 2013

Roundup │ 26 October 2013

House sales held back by mismatch between sellers' asking prices and lenders'valuations, FT • David Cameron could abandon plans for £50bn HS2 if Labour withdraws support for the high speed rail link, FT • Big spread with lots of pics in The Times about redevelopment of 39-acre Battersea Power Station site • Somewhat arty, but relevant, piece in FT House & Home section about how architects of all sectors - not just housing - are flocking to brick. Could presage even greater material and skill shortages, delays and price hikes than in previous booms?

Friday, 25 October 2013

Roundup │ 25 October 2013

"Frantic" bidding war for housebuilding land, FT • Innovative low-cost housebuilder Pocket Living gains GLA funding, FT • Further management turmoil at Morgan Sindall, Building • RBS "bad bank" to sell tranche of property assets, FT Q3 GDP rises 0.8% in Q3, up from 0.7% in Q2, and as expected; Construction component saw the biggest rise: +2.5%, ONS

Thursday, 24 October 2013

London and Spain: the view from the top ... and the bottom

Two housing themes, with an international flavour, are increasingly exercising the print media and Twittersphere. The first is the gathering frenzy of what to do (or not do) about the supposed legions of foreigners pushing up the price of London homes. The other - definitely at the other end of the spectrum - is the possibility that the bombed out Spanish property market may finally be emerging from the dead.

The fact that, to a great extent, London house prices are being bid up by foreign buyers is as much an open secret as what Chancellor Angela Merkel says on her mobile phone, so I won't dwell on it. It's what to do about this that has raised debate to fever pitch, especially over the past few days. Windfall taxes for foreign buyers are back on the agenda (a convenient moment, when senior politicians are mooting it for "greedy" energy groups").

A lovely New York Times piece by Michael Goldfarb, doing the rounds today, elegantly illustrates the problem: London property's status as a "global reserve currency" is making the capital a "no-go area for increasing numbers of the middle classes". Building magazine's Joey Gardiner has summarised succinctly the conflicting arguments of what might be done about it. These range from the imposition of taxes on foreign purchases, especially those that remain empty (suggested by some Tories, among others), to the wackier option of outright bans (from Simon Hughes of the LibDems). In the feature developers argue that this may damage the market for normal punters as overseas investors "pump prime" the early stages of developments. (A bit of a specious argument since, in many major London sites, foreigners or bonus-heavy bankers, are not just pump priming but buying the entire filling station, as it were).

For what it's worth, my own back-of-a-fag-pack policy is a levy - let's call it 5% - for all foreign purchases where the owner is not using it as a principal residence (ie not an occasional bolt-hole). The revenue raised would be religiously ploughed back into lowering the rates, or raising the thresholds, of middle range Stamp Duty bands (lower price ranges are already getting lots of government help - at least until it all inevitably goes pear-shaped - through Help to Buy and other government wheezes).

The idea of anything remotely sounding like protectionism personally sticks in the craw, but the current situation is so distortionary that one could envisage civil unrest ... and a metropolitan re-rehash of those old "come home to a real fire" jokes ("buy a Welsh holiday cottage").

Some Asian cities are already imposing such taxes on foreign "speculators" and, by hypothecating it with Stamp Duty cuts, you would be off-setting one tax to reduce an even more iniquitous one, which is more than anything gridlocking the London mid-market. Whatever proposals circulate, expect the general subject to become the latest political hot potato.

Talking about patatas bravas ... there have been a few newspaper headlines in recent days about wily - or possibly fool-hardy - investors dipping back into Spanish property. The battered country's economy shuddered back into life (if you can believe the numbers) with a 0.1% rise in GDP in the third quarter (don't laugh, it's the first time in nine quarters the figure has not had a minus sign in front of it). Sareb - the state run "bad bank" drew 30 offers, including from US private equity groups, for a €300m batch of non-performing residential mortgages, according to today's FT. This follows on from news that Microsoft founder Bill Gates had squirrelled away 6% of construction and property group FCC, at €113m mere peanuts for one of the world's richest men.

It's maybe tempting fate a bit for headline writers to revive Y Viva Espana, but the early bird catches the worm or, as German private equity groups might say, is the first with the beach towel.  

Wednesday, 23 October 2013

Housing development's haves and have-nots

Interesting read in the Guardian, highlighting the issues of mixing private and affordable housing. High Point Village, Ballymore’s 2007 development of 600 new homes at Hayes, west London, is effectively a “gated community within a gated community”, separating the private from affordable. Possible Memories of The Titanic, in which the steerage passengers, sorry, affordable housing residents were allegedly left without water for two days during a water supply disruption and were barred from using the emergency hosepipe, which was only available to private owners. Affordable residents claim they were also ejected from a Facebook page for High Point Village residents for raising their concerns. Link

Monday, 21 October 2013

Unplug the politicians

Beware the Law of Unintended Consequences. As the General Election looms ever nearer, politicians are making increasingly bellicose threats to energy companies and other infrastructure owners over price rises and regulators and even the Archbishop of Canterbury are joining the chorus. While it might get a few more crosses on voting slips (or even bums on pews), their interventions may already be leading to price rises and may delay or cancel construction of major infrastructure projects.
Labour leader Ed Milliband promised at his party’s conference last month to freeze electricity prices for 20 months and woe betide any of the despicable providers trying to pre-empt a Labour win by edging up its prices in advance. Two days later energy firm SSE hiked its by 7 - 9.7% for 4.4 million electricity customers and 2.9 million gas customers. It blamed the increase not only on wholesale prices but also green levies introduced by the previous Labour government. Could this be a double unintended consequence of Labour policy: one for the cost of subsidising wind and the other to buffer themselves against the possibility of a Milliband-led government from 2015?

Not to be outdone, Scottish First Minister Alex Salmond, promised at his conference that an independent Scotland would cut tariffs, by 5%, thanks to the fledgling state taking on the green commitments itself.
British Gas and Npower have since joined in what critics might tag the “dash-to-stash”, when it hiked prices by 9% and 10.4% respectively. Number 10 clumsily suggested customers should invest in woolly jumpers ... then generated much heat while backtracking.
It’s not only energy companies that are encountering this dabbling. Many a London resident will have raised a glass of seven-times recycled tap water this month to celebrate industry regulator Ofwat’s rejection of Thames Water’s proposed 8% price rise. I’m as happy as any of them to stop paying any more to the utility, largely owned by Australian, Chinese and Abu Dhabi investors. But I’m also miffed that every time I walk along Cannon Street it smells worse than when Romans were queuing to spend a sestertius at the local facilities.
London’s groaning drainage network is to be upgraded with the construction of the £4.1bn “super sewer”, but Thames claims it needs the increase in charges to pay for this and widespread repairs to the 25,000 miles of private sewers. No doubt there will be a degree of brinkmanship before the regulator makes a final decision next month, but the increasingly hawkish stance of politicians or regulators towards price setting threats either delays to huge infrastructure projects or even cancellations.
Unpopular as rising utility bills are, someone has to pay for the many billions needed in keeping the lights on, the taps running and the trains running. Foreign investors now fund the majority of many of the infrastructure groups. The more capricious politicians and regulators become, the greater a perceived risk investment will become for the largest projects, with the longest lead times. That could mean higher required rates of return ... and higher bills.
Political wrangling also invariably leads to delays. Witness today’s go-ahead for the French and Chinese-funded £16bn Hinkley C nuclear reactor, which is now running at least a year late, thanks in part to two years of bickering over the “strike price” for power generated by the first new nuclear reactor in 20 years. Observe too the interminable political fights and rival economic impact “studies” miring the HS2 project.
Or they can just be cancelled. Heathrow Airport shareholders are now threatening not to build a multi-billion pound third runway (should it get the parliamentary go-ahead in any case - far from a given) because the Civil Aviation Authority will not allow it to raise landing fees over and above inflation.
There is already a spectacular case study in London, the collapse in 2009 of the Metronet Public Private Partnership consortium, which was undertaking two-thirds of the upgrade of the Underground network. Metronet effectively “threw away the keys” after many months of disputes with the “PPP arbitrator” over £2bn of work it said it had been required to carry out by London Underground but had not paid. Given the vitriolic opposition among many London Assembly members to the “privatisation of the Tube”, it would come as little surprise if LU or other parties were egged on. If so, there was a lot of egg on faces, with major disruptions to work and taxpayers picking up the £400m tab for the collapse.
However, the UK government’s “new best friends”, the Chinese, and other foreign sovereign wealth funds behind the biggest projects may start flexing their muscles if they see their investments mired by political delays. If not, construction companies risk making hefty investments just to see designs gathering dust.

Thursday, 17 October 2013

Perkin' up

If you want to know what’s happening in the building industry - volumes, prices (and, if they’re directors are feeling indiscrete, which major customers are not paying their bills) - ask a builders’ merchant. As such, Travis Perkins is as good a bellwether as they come. The UK group’s Interim Management Statement for Q3 presents a useful snapshot for companies up and down the supply chain.

Overall, the picture is encouraging: like-for-like sales (equalising for different numbers of trading days and store openings) rose 6.3% compared with the same period in 2012. This shows improving momentum, since the increase for the year to date was a more modest 2.8% versus the same nine months in 2012.

But there was a marked divergence between the trade divisions, which serve a wide range of small to largish builders, and the DIY-focused consumer unit. Both General Merchanting and Specialist Merchanting delivered Q3/Q3 growth of 10.7% and 10.6% respectively and Plumbing & Heating (which competes with Wolseley), 5%. But “challenging” retail markets meant Consumer, which includes Wickes and Tile Giant saw a completely flat trend, having recorded an 8.6% spurt over May and June of this year.

A similar contrast held in pricing. Deflationary pressure, although still negative, began to ease in the quarter, but Wickes “continued to experience more pronounced deflation”.

Looking forward, soon to retire Chief Executive Geoff Cooper, signalled that, “whilst still early in the recovery of our markets”, signalled further recovery into 2014 on the trade side as owners and occupiers reacted to long overdue new build investment and maintenance.

But it looks as if the stuttering performance of the retail side reflects a broader uncertainty among consumers that grates with the overall media picture of growth. This appears unlikely to improve until there is a  substantial increase in housing transaction numbers and improved household balance sheets. The former may be helped by the second stage of Help to Buy, but the latter is challenged by ONS data shows inflation continuing to outstrip earnings growth).

Tuesday, 15 October 2013

A tale of two ditties

It’s not so much a tale of two cities as a tale of one city and the rest of the UK. Stock Exchange releases today from two very different housebuilders continue to show strong trading in both cases, but in very different ways.

Bellway, a volume housebuilder somewhat erroneously associated with the North recorded an 8% increase in volumes, a 3% rise in prices and a whopping 34% in pre-tax profits for the year to July. This reflected a broad-based recovery across most of the company’s regions, and was heavily assisted by the new homes- only first phase of the government’s Help to Buy.

AIM-listed Telford Homes, which overwhelmingly trades in and around London, said in a trading update for its first half year to September that full year results, to March, would be “significantly ahead of market expectations”. This was thanks largely to “substantially improved margins” and without recourse to any Help to Buy funding.

Newcastle-HQ’s Bellway said it would target 15% more housing completions in the current financial year. Telford offered a bolder, but less specific, strategy “to considerably increase output over the next few years”.

Where the two companies diverge considerably appears to be in who buys its homes. Bellway concentrates on traditional family housing, largely for “real” buyers and saw prices rise by 8% in the northern half of its operations largely as a result of selling bigger units rather than underlying price inflation. (Its southern operations saw more modest growth in volumes and prices, probably because of more demanding year-on-year comparables.)

More apartment-heavy Telford’s statement would have greatly heartened London Mayor Boris Johnson on his mission to woo Chinese investment in the capital. Two-thirds of reservations for one of its latest launches, near Canary Wharf, had come from foreign investors and, for the first time, many of these were from Chinese. (The lowering of trade and visa barriers, in the wake of Boris’s – and, oh yes, George Osborne’s – trip to Beijing, one assumes, will only further encourage this trend.)

Significantly, these sales are for completion around spring of 2017. Indeed, across its sites, Telford is seeing “exceptional demand from both owner-occupiers and UK investors even though the developments are being marketed a year or more ahead of completion”. “Off-plan” is back with a vengeance.

What emerges from these two accounts is a picture in London of speculative froth much dependent on the whims of global speculators and, everywhere else, a plodding recovery that is largely reliant on government support, low interest rates and banks’ recently improved risk appetite.
Bellway link Telford link