Housing is cooling down – but there’s still money to be made

The London property market has turned in the last year. In the most expensive postcodes prices have fallen by 10%. But there’s still money to be made.

You’ll find the Agora Financial offices just off Blackfriars Road on the South Bank, in London.

For the last two years my daily commute has taken me past a giant building site where Blackfriars Road meets the river: the site of 1 Blackfriars Tower. 1 Blackfriars is a huge sail-shaped block of luxury flats. It’s situated right at the bend in the river, where its 52 stories will be visible from all over London.

Here’s the latest view:

rar2005
(Don’t expect a great review from The Guardian’s environment editor.)

The Pentuplex

Flats at 1 Blackfriars go from £1.5m for The Gainsborough Collection (that’s a one-bed) to £23m for The Pentuplex (the penthouse). Important to shift them as fast as possible! So the first thing the developers have built, before even digging the foundations on the building itself, is a miniature two-story cross section of the tower – the marketing suite. Reportedly it cost over £1m.

The marketing suite opened around two years ago and it seemed busy, at first. I used to regularly spot Bentleys and Lamborghinis idling outside, and East Asian businessmen could be seen through the windows of the fake apartments poking around in the wardrobes. But the Lambos seem to have dried up recently.

The London property market has turned in the last year. In 1 Blackfriars and the most expensive London postcodes – home to the sheiks, oligarchs, rich Chinese and hedge fund managers – prices have actually fallen by 10%.

Nobody’s shedding tears for the Lamborghini set. But the problem doesn’t stop just there. House prices seem to have peaked in many “merely” rich London areas such as Chelsea, Kensington and Islington. That’s hit profits at estate agents such as Foxtons and Countrywide, which make most of their money in London. Another problem for the agents – the property market feeding frenzy attracted lots of new competition, which ate into their margins.

The other Britain

But the headline of this piece says there’s money to be made. Without further ado, I give you:

Homebuilders.

Homebuilders have done a lot better than estate agents in the last few years, despite seeming to be closely related. Why’s that?

First up: the London effect. Homebuilders are much less exposed to London than estate agents. (Not too many empty sites there). So they’ve been less affected by the slowdown in the capital.

Second: costs are under control. The UK has a terrible record at building new houses over the last 15 years. That’s bad for people who need houses but good news for financial directors of homebuilders, because it’s allowed them to keep costs under control.

Third: Help to Buy. Help to Buy is a government bung to first time buyers – and to the homebuilders who sell to them. It’s created loads of new demand for homes from people who otherwise would’ve had to save for years before they could afford to buy. In addition to Help to Buy, the government has a whole bunch of other schemes and plans to make it easier to build and pay for houses. It’s paying councils who loosen planning laws, setting up special housing ISAs, and on and on.

When you think of a homebuilder you probably think of one of the giants like Barratt, Taylor Wimpey or Persimmon. But it’s a big field. There are “upstart” building companies out there. They’re making the most of this big moment for their industry and growing like mad. And last year, I tipped one for The Penny Share Letter portfolio. Click to access my full research.

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