In a trading update published on Friday, the FTSE 100 housebuilder said a combination of high transaction costs, limits on mortgage borrowing and prevailing economic uncertainty would curtail production beyond its business plan levels.
It also noted dwindling activity from buy-to-let investors because of the removal of mortgage interest deductibility would have an effect on its production.
Berkeley Group’s shares dropped 6% after the announcement before bouncing back to trade 4.10% lower, while fellow FTSE 100 housebuilders Barratt Developments and Taylor Wimpey were down 1.38% and 1.10% respectively. FTSE 250 firm Bovis’s shares also dipped 0.56%.
In line with plan
Despite the negative outlook on production, Berkeley said trading remained in line with business plans and sales prices are above planned levels.
It anticipates forward sales to be above £2bn at 30 April and the board is confident of delivering at least £3.3bn of pre-tax profits for the five-year period 1 May 2016 to 30 April 2021, with £1.5bn pre-tax profit expected in the two years ending 30 April 2019.
Berkeley’s trading statement said: “The fundamentals of the market in London and the South East remain compelling, but the operating environment and its impact on transaction volumes, whilst sufficient for the business plan and five-year profit guidance period that ends at 30 April 2021, do not support the step-up in Berkeley’s production levels that these markets so badly need.
“Our focus is on ensuring we achieve the right planning consents on our long-term regeneration sites, and then working with our partners and stakeholders to bring these through into production.”
Helal Miah, investment research analyst at the Share Centre, said: “As the shares of housebuilders have been recovering from the Brexit fallout, we have been expressing our caution on the sector and as a result of this and today’s update, we continue to recommend Berkeley as a ‘hold’.
“Investors should note nonetheless that shares in the sector will for the time being continue to return strong cashflows back to investors through dividends.”
UK housebuilders have split opinion among UK equity fund managers in recent months, with the likes of Investec’s Blake Hutchins shunning them and Neil Woodford remaining in favour.
According to FE Analytics, the Royal London UK Opportunities fund, managed by Craig Yeaman, has Berkeley Group Holdings in its top 10 holdings at 3.11% of the portfolio. Yeaman was unavailable for comment.