Those who’ve read the financial press over the last six months will likely have the impression the UK economy is collapsing, the property market is on its knees and Brexit is to blame for everything. This has been the long-standing media position after the shock Brexit vote last year but the UK property market is proving to be extremely resilient as is the UK economy. Housebuilder Persimmon recently announced a very impressive set of figures which will have some critics scratching their head.
Pre-tax profits for the year 2016 increased by a very impressive 23% to £783 million on turnover up 8% to £3.1 billion. This follows the trend set by Barratt Developments and Redrow last week both of which surprised the market with impressive figures. When you bear in mind the collapse in the housebuilding sector in light of the Brexit vote it may surprise many to learn that share prices have now clawed their way back to where they were pre-Brexit.
We will now take a look at the detailed announcement by Persimmon covering the UK property market in 2016 and hopes for the future.
More interest in UK property
Since the beginning of 2017 the company has seen a 7% increase in the number of potential house buyers visiting development sites compared to a year ago. The company also completed just over 15,000 new homes in 2016 which was an increase of 599 on the previous year. The average selling prices also increased by 3.8% up to £206,765. When you bear in mind the average property price in the UK is significantly higher than this we can only assume the market for smaller properties is showing significant growth.
Some experts have highlighted various government incentives schemes to assist the UK property market while others have taken advice from estate agents. Many estate agents are complaining there is limited second-hand properties available which is forcing more and more people to look at the new build market. As we have touched on in previous articles, there is growing demand for UK property but a definite lack of suitable properties for sale.
It has to be said that some of the demand for UK property has been prompted by record low base rates which have obviously dragged down the cost of mortgages. Even though we are now approaching a decade of historic low interest rates in the UK there is no sign of any significant upward movement.
Strong balance sheet
Persimmon had already announced plans to return capital to shareholders in the form of a special dividend. This planned return has now been increased by a further £77 million (or 25p per share) with a total of £9.25 per share set to be returned to shareholders in the future. It would seem that returning capital to shareholders is more beneficial than retaining on deposit or increasing the company’s land bank at this moment in time.
It would be dangerous to write off the potential implications of Brexit going forward for the UK property market. However, at this moment in time it is business as usual and demand for UK property is actually growing.