Viztry remains positive about the strong demand for new homes

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Demand for new homes is still strong despite rising interest rates and inflation, according to Vistry Group, the latest large housebuilder to downplay the effect of the UK’s economic slowdown on the property market.

The FTSE 250 housebuilder said in an update on Friday that demand from buyers was above last year’s already elevated levels and that it anticipated full-year profits at the top end of guidance.

This upbeat announcement came following a similar one by Persimmon, FTSE100 developer. It contrasts to mounting fears about a slowdown of the housing market due to rising rates, inflation, and fears for recession.

These worries have affected shares across the entire housebuilding industry over the past six month. Vistry’s share price is down by around 28 per cent over that period, Persimmon’s 34 per cent.

But Greg Fitzgerald, Vistry’s chief executive, said “whilst mindful of the wider economic uncertainties, we are positive on the outlook for the group.”

On Thursday, Persimmon said demand was unaffected by issues in the wider economy, and that it expected profits for the year to be “modestly above our expectations”.

Both builders are confident they can pass higher construction costs — which have resulted in part from the disruption to supply chains caused by the pandemic and war in Ukraine — on to consumers by raising property prices.

“The market is still pricing these stocks for a pretty sharp correction and there’s still no sign of it,” said Clyde Lewis, an analyst at Peel Hunt.

“The only real reason you could see that 30 drop [in shares] justified is if house prices start properly falling . . . The market is assuming too big a correction over the next 12-24 months,” he added.

Lewis says that rising costs and a poorly-planned planning system will be major obstacles.

Persimmon warned Thursday that delays in the planning process and difficulties navigating new Natural England guidance, which regulates the impact of new homes on the environment, were affecting its ability to build homes. The group warned that this was slowing down the pace of construction and would ultimately affect sales.

Lewis stated that little would change unless government reforms the planning system and invests in local planning departments. “It’s a bottleneck and I can’t see it easing,” he said.

However, addressing the planning system in the short-term is not a realistic option. Boris Johnson, the prime minister, resigned on Thursday as he announced his resignation. He also fired Michael Gove (housing secretary).

Johnson appointed Greg Clark (an ex-housing secretary) to lead the department. But few people in the sector expect major policy announcements before a new Conservative leader will be chosen later this year.

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