Shares in homebuilder Berkeley (BKG.L) fell on Wednesday despite posting a profits boost from housing demand and forecasting higher profits in the coming months.
The FTSE 100 (^FTSE) developer said house prices in London were unlikely to fall as demand remained solid, despite growing fears about the economy, because the capital has a chronic undersupply of housing.
UK house prices have remained firm although the pace of growth has slowed as the surging cost of essentials from fuel to home appliances puts pressure on household finances.
Berkeley, which claims to be responsible for one in ten new homes built in the capital, said cost inflation caused by Russia’s invasion of Ukraine and supply chain disruption was being offset by higher house prices.
It posted pre-tax profits of £552m ($675m) for the 12 months to the end of April, a 6.4% increase on the previous year, even as operating expenses rose 18% to £157m.
The group now expects pre-tax earnings of about £600m for the year ending 30 April 2023 and £625m for the two years thereafter.
Company shares, which were already down around 24% since the start of the year, fell 3.6% in mid-morning trade in London.
Despite soaring demand, London's biggest homebuilder plans to put the brakes on buying new land as it pivots to returning capital to shareholders against a backdrop of a cooling housing market.
Berkeley it said it "will now only acquire new land very selectively", after a period of sustained investment in new projects, adding it will instead prioritise returning cash to investors over and above its existing commitments.
"The economic and operating environment remains volatile with inflation, labour and materials shortages, interest rates and regulatory costs of development all having the potential to impact supply and demand," a company statement said.
However the builder added "the ongoing undersupply of housing" meant that, even in such a challenging environment, demand was outstripping supply.
Recent analysis indicates Britain's housing market is showing signs of cooling after a period of exceptional price growth driven by the pandemic and accelerated by a stamp duty holiday. Rampant inflation and rising interest rates, which are starting to limit buyers’ ability to service large mortgages, also threaten to cool demand.
Richard Hunter, head of markets at interactive investor, said: "Berkeley continues its growth at pace, although the disconnect between its trading performance and share price performance remains significant.
"The sector as a whole has been downgraded on fears of inflation, the propensity of consumers to buy given the tightening economic environment and a rising interest rate environment which puts further pressure on affordability.
"Supply chain constraints and a generally dour outlook on UK economic prospects complete the mix, despite the fact that for the most part the housebuilders continue to deliver.
"For Berkeley, a busy period of acquisitions seems to have been completed for now, with the group stating that it will only be undertaking selective acquisitions in the immediate future as it concentrates on unlocking the value from the purchases it has made."
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