Shares in some of the housebuilders are finally showing signs of life after a poor first quarter caused by concerns over the potential cost of fixing cladding on high-rise blocks.
In January, the Department for Levelling Up, Housing and Communities announced it wanted developers to contribute £4 billion to a new fund to remediate what it called life-critical safety issues on buildings over 11 metres high built at any time in the last 30 years.
This week, after consultation with the industry, the government asked companies instead to sign a voluntary pledge, spurring investors to dip their toe back into the sector.
COUNTING THE COST
Yesterday, Crest Nicholson (CRST) said it would sign the Building Safety Pledge ‘in the interests of all stakeholders’ and take further steps to support people living in affected buildings.
The firm had already set aside roughly £48 million for work on buildings over 18 metres tall.
Under the pledge, its best estimate of further liabilities for buildings between 11 metres and 18 metres high was between £80 million and £120 million, which it would take as a one-off charge this year.
Shares in Crest Nicholson fell 2.7% yesterday to 269p, bringing their loss since January 10 when the DLUHC first proposed a levy on the sector to almost 25%.
Persimmon (PSN) also said yesterday it would sign the pledge, but argued the £75 million it had provisioned so far was ‘appropriate’ and it didn’t need to take any further charges.
The shares were flat yesterday at £22.12 bringing the drop in the share price since January 10 to more than 20%, meaning a loss of nearly £1.9 billion in market value.
In a brief statement Berkeley Group (BKG) said it had signed the pledge but gave no further details. Since January 10 its shares have lost 19% to £38.98 meaning a loss of almost exactly £1 billion in market value.
Today, Redrow (RDW) confirmed it had signed the pledge and would take an additional provision of £164 million on top of the £34 million it had previously set aside for the work.
Shares dipped 1.3% to 518p, bringing losses since January to nearly 25% and wiping off £600 million in market value.
EXPERT VIEW
Analysts at Liberum expect the housebuilders to bounce on this week’s news given the market has clearly over-discounted the level of provisions that many firms may need to take.
They see the industry paying around £1 billion in what they call ‘the second phase of this saga’, whereas the loss in market value across the sector is considerably higher.
‘We see settlement of the cladding issue as positive for the industry as the industry’s costs are much smaller than the market’s view of the worst-case scenario and uncertainty is reduced’, they conclude.
