FTSE 250 builder Redrow, on of the UK’s biggest housebuilders, has announced plans to pull out of the London market. Housing projects in the capital account for around 15% of Redrow’s overall turnover but the company has arrived at the conclusion that changes to the British property market it expects in the wake of the coronavirus crisis will see demand in London drop.
Redrow, which completed 6,443 homes last year and is currently actively building on six sites in the capital. It will complete work there but then step back from all activity in the capital. The company’s roots are in the construction of traditional houses outside of London and its typical property tend to be larger than those build by its competitors with, says chief executive John Tutte “access to green space”.
That’s also the direction Mr Tutte and the company’s leadership believes the wider market will head back towards. Redrow has already seen evidence that buyers are now looking for larger homes in less built up areas and with greater access to parks or the countryside. The Covid-19 pandemic, it is believed, has brought an end to the cycle of the population concentrating itself in and around a small number of super cities and sprawling metropolitan areas.
However, even before the coronavirus crisis it seems Redrow had been questioning the attractiveness of the London market. The company has warned investors that pulling out of the capital will mean impairment costs, with land assets already held and to be sold reduced in value compared to what they were acquired at.
Mr Tutte commented:
“Our ambition is to reduce our capital investment in London and divert it into achieving higher growth in the regions. It’s almost been death by a thousand cuts in London, which started with stamp duty going up and overseas investors withdrawing from the market.”
Those conditions have seen margins fall as selling prices have dipped with costs remaining extremely high. Mr Tutte also criticised two-tier planning systems meaning both local authorities and the Greater London Authority have to approve building plans, which, he says, slows things down a lot.
But the broader suspicion is that housing market trends will change over the coming decade and longer. A YouGov poll found that 15.9 people, almost a third of UK adults, believe they have suffered from either mental or physical health problems as a result of a lack of home space during lockdown. That appears to have been a catalyst for a desire for change.
Property portal Rightmove reports an 84% rise in searches for rental homes with gardens since May and by 42% from buyers. Around 30% of searches specified a preference for a rural area.
The economic impact of the pandemic is also a factor for house builders currently preferring greenfield sights outside of London, which are seen as less risky projects. Greenfield developments can be built in phases, based on demand. A large city centre apartment building, on the other hand, has to built in its entirety, involving a significant upfront investment.
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