Property & Construction Daily

The Property & Construction Daily provides a sector-specific comment from leading analyst Alastair Stewart. His daily perspective provides a round-up of market statements, news, economics and views from the property and construction sectors.

<< Back to Property & Construction Daily archive

November 10, 2022

House prices expected to fall by under 2% – RICS (GFTU, RGL)

Company news

Grafton Group (GFTU, 727p, £1,655m mkt cap)

UK, Irish, Dutch builders’ merchant and products group. Trading update 4 months to 31 October (Sep). Guidance: “Notwithstanding macro-economic challenges particularly in the UK, the Group is confident that it will deliver its expectations for the year”. Trading: LFL rev, constant currency, +1.8% Y/Y; total rev +9.5%. UK, LFL, CC, -3.4%; Ireland +2.7%; Netherlands +7.7%. UK distribution: “Selco Builders Warehouse average daily like-for-like revenue declined by 6.1% and building materials sales price inflation moderated from the high double-digit level experienced in the first half. Households reduced discretionary and non-essential spending on their homes in response to the significant decline in real disposable incomes, interest rate increases and a fall in consumer confidence. The MacBlair distribution business in Northern Ireland traded at close to last year’s record level with increased revenue from house building offsetting an anticipated decline in housing RMI. The TG Lynes commercial pipe and fittings distributor in London performed strongly benefitting from good demand in the public sector, house building and apartment construction segments. Leyland SDM, the specialist decorators’ merchant in London, continued to benefit from a post pandemic recovery”. Ireland: “Chadwicks’ market leading distribution business in Ireland operated at high activity levels in a market that continued to experience significant price inflation. House building held up well despite the sharp increase in construction costs which has put volumes under pressure in the one-off housing and apartment markets. There was good demand in the residential RMI market although the availability of skilled labour was a limiting factor on growth”. Netherlands: “The positive first half revenue trends in the Netherlands continued at a similar pace in the period driven by price inflation. Volumes were broadly flat as good growth across key account customers engaged in commercial construction and the maintenance of public sector housing offset lower volumes supplied to smaller customers operating in the housing RMI market”.

Regional REIT (RGL, 63p, £323m)

Real estate investment trust specialising in income generating regional UK office and industrial assets. Trading update and dividend declaration, Q3 (Sep). Trading: Since 1 January, the group has exchanged on 83 leases to new tenants totalling 221,446 sq ft and £3.8m pa of rental income when fully occupied. Of this total, 36 leases have been exchanged since 30 June 2022, totalling 75,877 sq ft and will provide £1.2m pa of rental income. EPRA occupancy overall has increased to 84.6%, versus 83.8% at 30 June 2022, with advanced asset management plans in place to further improve this figure. Q3 div +3.1% Y/Y, 1.65p. Outlook: “The outlook remains positive. Despite the challenging and uncertain economic outlook, the company’s business model continues to perform strongly in the year to date. Continually robust rent collections, underpinned by geographical and occupier diversification and a further increase in occupancy has positioned the company well”.

Economic data

Housing market. House prices stopped growing in October for the first time since the onset of the pandemic and the decline in buyer enquiries accelerated according to the latest RICS survey (link).  The headline net balance (% of survey reporting rise minus % seeing a fall) for house prices slipped into negative territory, -2%, down from +30% in September, ending a sequence of 28 positive monthly readings, representing rises (below, left). Five of the nine English regions registered falls, while Scotland, Wales and N Ireland saw continuing increases in prices (below, right).

House Prices Nov 22

However, price expectations sank, with a balance of -42% of the respondents expecting a decline over the next twelve months, from -18% in September, with all regions expecting falls – again, with Scotland, Wales and N Ireland showing less negative balances than most English regions. Nevertheless, the expectations for actual declines (as opposed to ‘balances’) was less than 2% for the following 12 months and still positive on a five year view (below, left). The 12-month outlook was less severe than expected during the pandemic – which was followed by big price increases. Buyer enquiries, though, continued their downward trajectory, falling for a sixth successive month, to -55% in October from -36% (below, right). It was another story in the Lettings survey: tenant demand registered a net balance of +46%, while landlord instructions fell once again according to a net balance of -14% of respondents at the headline level. The imbalance led to a net balance of +52%, narrowly below the +57% seen last quarter, but still representing strong growth. At the twelve-month time horizon, respondents envisage actual rents picking up by c. 4% nationally.

House Prices2 Nov 22
Download Insight as PDF

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.