News & Analysis

Taylor Wimpey shares at 1 month high as British buyers show love for new houses

Andrew Saks, Thursday, 5 August 2021

If, like me, you are of the disposition that only likes brand new houses, the latest results from British homebuilding giant Taylor Wimpey will perhaps resonate well.

The company, which is listed on the FTSE 100 index and is one of the largest residential building companies in the United Kingdom has been doing very well indeed recently, and yesterday announced that it has built a record 7,303 homes in first six months of the year.

This has resulted in the company having turned a profit for the financial year, which is a stark contrast to the loss it made last year.

Therefore, this morning, Taylor Wimpey share prices are at a one-month high, resting at 169.15p per share, which is 2.55% up on a monthly average. This morning, in the first 20 minutes of trading at the London Stock Exchange, Taylor Wimpey shares rose by a further 0.72%, with investor confidence being boosted by the clear, black and white figures that show a pre-tax profit of £287.5 million in the recently reported results, which is a remarkable improvement from a £39.8 million loss last year.

My fellow fans of modern homes will perhaps be equally upbeat about the way Taylor Wimpey has managed the elephant in the room which is supply chain and cost inflation. The company has managed to fully offset the increase in cost of building materials by rising house prices, as the average price for a brand-new Taylor Wimpey private home rose by 6.5% to £327,000.

The bumper profits come despite a £125million exceptional cost to make apartment buildings safe and mortgageable in line with the latest regulations set up after the 2017 fire at Grenfell Tower in West London. It is of course worthy of note that a brand new home of any type, offered by any construction company anywhere within Central London would not cost anywhere near the average £327,000, and would be more like £1 million.

This is where the big money is for the large house builders. Companies of equally large size as Taylor Wimpey such as Berkeley Homes and Ballymore have been acquiring prime real estate in Central London, mostly along the River Thames, for around three years now, and have been constructing large scale apartment buildings.

Yes, the land is relatively expensive, but construction companies with this level of expertise, purchasing power among suppliers and economies of scale can build new estates with over 1500 apartments and sell each for anything from £500,000 for a studio to £4 million for a 4-bedroom penthouse, with the average 2 to 3 bedroom effort costing £1 million.

It is wort the investment in ensuring compliance with new safety regulations to be able to gain licenses and permission to build such estates, as they are highly profitable enterprises for these construction companies, even when the cost of the land is borne in mind.

Often, a further channel of income is made possible via this method too, because the construction companies which build luxury apartment complexes often remain as the freeholder, so that when the apartments are sold, the new owners have to pay the service charges to the construction companies, which make a substantial profit from these on an ongoing basis, plus remain in control of how the estate looks and operates, which preserves their image as a manufacturer of desirable new neighborhoods.

Outside London, the average price for a Taylor Wimpey private home rose by 6.5 per cent to £327,000, with total average selling price up 11.2 per cent to £299,000, reflecting a lower proportion of affordable homes having been included.

With Taylor Wimpey's share price now at an almost equal high to the early 2021 level when the stamp duty (property purchase tax) break had been granted by the British government, it will be of interest to note what will happen to the demand for new homes in the coming months.

Stamp duty relief has been gradually coming back since June this year and will revert back to the original threshold at the end of September, which has already seen values begin to edge lower, according to recent house price indices.

Month-on-month, house prices fell by 0.5 per cent in July to an average of £244,229, against a 0.7 per cent rise in June, according to the latest figures by Nationwide.

Regardless, Taylor Wimpey remains confident that it will be able to maintain its momentum, stating that customer reservations for new properties are 'well beyond' the end of the stamp duty holiday and expects house completions to rise to between 13,000 and 14,000 this year.      

The company has said that its currently under construction private homes developments are around 99% sold as of August 1, up from some 97% a year earlier and 87% two years ago.

When I came to the United Kingdom, I was under the impression that British people tend to favor traditional homes, and that renovated Victorian and Edwardian properties are the ones that have the highest kudos, however it appears that it is not just me who prefers modern surroundings.

 

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