Sunday, 8 August 2010
Property Companies a good bet?
However, here we are a few years later and the Government has changed and with it, in some ways, the intersect. For the new Government is going to cut Public Sector spending and this will have a big effect on changing the dynamic of the private economy. The bigger the cuts, the more the change.
One good example has struck me this week. Private Housebuilders did not have a good recession, rights issues, collapses the sector saw the worst of the crash. Even some of the big companies like Taylor Wimpey had a close call. They have downsized their build plans and are now sitting on landbanks. Looking at some of the results this week, the corner has been turned.
But actually, there is a massive buying opportunity here for residential housebuilders. The Government is going to cut the budgets for social housing, it must do. Instead it will try and encourage more private building. We also know the planning laws in the UK are amongst the strictest in the world, which is why commercial property returns where building is easier, are nowhere close to residential returns.
Now the country needs new houses as the population is growing rapidly. 200,000 a year, but we are at half that level and have been for some time. This effect, according to the Barker report, will take time to feed into property prices. But it will, along with higher interest rates. For housebuilders, higher prices are nice, but really they need more volume - this shortage of houses coupled with the Government cutbacks presents an ideal market for the next 5 years or so. They can gear up to build more and know that supply is so limited that it will always meet the demand, even if we have sclerotic growth in the meantime. They may even pick up a few public sector contracts if the Government decides instead to get serious about social housing.
The FTSE, although toppy for the summer, is not close to all time highs and taking a long view, the residential property sector must be one to look at.