Private Investor: House-builder limbo - how low can they go?
Saturday 14 June 2008
I don't have much time for angling, in any sense, I'm afraid, but I'm always up for a bit of bottom fishing in the stock market. Thanks to a bit of fun in The Independent's business section last week, I've been nosing around some of the members of the "90 per cent club", lovingly detailed in that article and listed by Thomson Reuters. Just in case you hadn't guessed, these are the shares that have lost over nine-10ths of their value from their peak over the past three years. That is, excluding the ones, such as Northern Rock, that have lost 100 per cent.
Surprisingly, perhaps, there aren't that many in the 90 per cent club (the more volatile AIM stocks are excluded). They are: Land of Leather (down 94.4 per cent); Paragon Group, of buy-to-let fame (off 93.2 per cent); Barratt Developments (92.8 per cent to the bad); SCI Entertainment (91.8 per cent); and the comparatively outperforming Skyepharma (down 90.4 per cent).
Some other stocks you might have heard about are not there. Yet. Bradford & Bingley has plummeted from a high point not so long ago of 536p to around 71p now, a mere 86.7 per cent down. Alliance and Leicester, another recent buy of mine, is off 71.9 per cent.
At this point I have to apologise, for the second week running, over my failure yet again to call the bottom for the banking sector. Just when you thought our banks couldn't go lower, they did. The only good news lately for me is that the Royal Bank of Scotland managed to keep its share price above the rights issue price. Others, as we have seen, have not been so lucky.
As it happens, I still think the banks are oversold, and the smart money will be piling into them, even if the bottom is not quite within sight yet, and even if the writedowns and losses will continue for a time.
I wish I could be as optimistic about the house-builders. At first glance, Barratts must be worth a punt. For those of us brought up on those memorable TV adverts for Barratt homes with the wonderful voice of the late Patrick Allen (much missed) it is difficult to imagine a world without Barratt Homes. It is a bit of a British institution, and sometimes, like all British institutions, the butt of a few gags.
However, such is the state of the property market that only the truly brave would put their money into the sector, and especially Barratts. It has problems. Its debts are huge, and it may soon be in danger of breaching its banking covenants. From this vantage point, with the benefit of hindsight, it paid too much for recent acquisitions such as Wilson Bowden. The best that can happen in those circumstances is that the banks will ramp up its interest bill. The credit crunch will see to that. The downward spiral in real estate pushes land prices disproportionately lower; like many primary commodities, land values tends to amplify movements in the economy. If the worst predictions come true, Barratt's land bank will be in negative equity before too long. Housing transactions are at their lowest in 30 years. First-time buyers can't get mortgages. It is not a good time to be selling starter homes, or most other types of property. Is it inconceivable that Barratt might go bust?
Yes and no. Yes in the sense that it could collapse under the weight of its difficulties and the housing slump. No, I think, in that the banks would be very unwilling to let a major house-builder go under. What's more likely to happen is that the banks will effectively take control of it and start running it for their own advantage. That would leave individual shareholders in a very vulnerable situation indeed.
So even at these prices, we may not have seen the end of the bust for the home-builders. Even if the shares have fallen by 95 per cent, it has to be said that there is no God-given law that says they might not fall by 95 per cent of where they are now. Unlike the banks, the house-builders are just too risky. It is difficult to see all of them making it through the storm.
By the way, one of the interesting things about the current credit crisis and downturn is how unprepared the Government seems to be for the industrial and commercial – rather than financial and economic – consequences of it all. What would ministers do if a major house-builder, commercial property firm, chain of estate agents, major airline or tour operator goes bust? Is there a contingency plan? Have they even thought about it?
Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk
Mark Dampier: 'Headlines scream panic but don't start ripping up your investments'
Buying property overseas? Check out these hotspots
Bargain Hunter: Exclusive discount on a SmartGlider - a self-balancing electric scooter
Questions of Cash: I've been chased for a phantom debt. What can I do to stop it haunting my credit status?
Offset mortgages: How to save thousands of pounds and reduce the term of your home loan
- 1 What marriage would look like if we actually followed the Bible
- 2 If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
- 3 'Heartbreaking' Syria orphan photo wasn't taken in Syria and not of orphan
- 4 Bob Geldof offers to take four refugee families into his home 'immediately' as he condemns humanitarian crisis as a ‘f**king disgrace'
- 5 Orthorexia nervosa: How becoming obsessed with healthy eating can lead to malnutrition
Britain to take more refugees as Cameron bows to pressure after more than 250,000 back our campaign
Senior British politicians tell David Cameron: When dead children are being washed up on beaches – it's time to act
Jeremy Corbyn calls Osama bin Laden's killing a 'tragedy' - but was it taken out of context?
If these extraordinarily powerful images of a dead Syrian child washed up on a beach don't change Europe's attitude to refugees, what will?
If you're not already angry about the refugee crisis, here's a history lesson to remind you why you really should be
Make your voice heard: Sign The Independent's petition to welcome refugees
iJobs Money & Business
£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...
£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...
£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...
£14000 - £16000 per annum: Recruitment Genius: This company was established in...
Day In a Page
This five-bedroom home in Sutton Coldfield is arranged over three floors, with a detached garage to the rear and a driveway at the front of the property.
In an elevated position above the bay, this four-bedroom home offers sea and headland views. There is a decked balcony and sun terrace - plus coastal walks on the doorstep.
With four bedrooms, this spacious maisonette in a mid-terrace period-style house in Holland Road is well-maintained and offers high ceilings and period features.
The terraces of this two-bedroom penthouse apartment offer panoramic views that stretch over fifty miles from the cliffs of Beachy Head.
In the heart of the coastal village of Mumbles and moments from the pier, this five-bedroom Victorian terrace is set over three floors and retains many original features.
In a sandbanks location, moments from the beach, this three-bedroom apartment has a large open-plan living area and a south-west facing balcony.
This four-bedroom home has an annexe accessed from the side of the house, with potential for improvement and conversion subject to the necessary permissions.
In the heart of the hamlet of Wardley, this five-bedroom period home offers countryside views and a stylish interior, with original features and open fireplaces.
Offering countryside views and landscaped gardens, this three-bedroom Grade II-listed lodge has a spacious conservatory and a large cellar that could serve as a workshop.
Set in approximately 1.5 acres, this four-bedroom home comes with a second, detached property that's currently used as an annexe.
In the hamlet of Newchurch, this former parish church is now a four-bedroom home complete with clock tower and eyrie.
Offering scenic views from a large balcony and sun terrace, this four-bedroom home has a wraparound garden and a heated swimming pool.
Offering views across the Humber and East Yorkshire Wolds from a glass panelled balcony, this four-bedroom barn-style home befits a life of leisure.
This four-bedroom home offers versatile accommodation with annexe potential; features include a hot tub, sauna and Norwegian BBQ hut.
Well-located for schools, colleges and the town centre, this contemporary thatched cottage offers flexible living space with six bedrooms.
Built in 1907, this four-bedroom Edwardian period home has been refurbished by the current owners, retaining many original period features.
Surrounded by landscaped gardens, this five-bedroom home offers living space across three floors.
This lovely country home in Burnham Market is currently run as a popular holiday cottage, with five en suite bedrooms and colourful gardens.
This three-bedroom 17th-century former village bakery is just a few miles from the East Sussex coast.
Set on a landscaped plot, this light and airy four-bedroom home comes with a log burner in the lounge, a fitted kitchen and an open-plan ground-floor layout.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Built on a former chapel site, this impressive four-bedroom home boasts balconies, stunning views and contemporary modern living.
This three-bedroom house is situated in a quiet mews and set over three floors. Features include glazed staircases and high ceilings.
A period townhouse set over four floors, this five-bedroom home was built in the 18th Century and retains many original features.
With five bedrooms, this spacious home offers beautiful gardens and modern interiors - set within the popular market town of Bingley.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This first-floor flat comes with two bedrooms, an impressive open-plan reception room and two lovely roof terraces.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Moored at Taggs Island and reached via a pretty garden, this two-bedroom houseboat has a vaulted reception room and skylit garden studio - currently a beauty salon.
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
A contemporary house spread over three storeys, this three-bedroom detached home has large sliding doors that open out to the River Quaggy.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
This former village bakery, dating back to the 17th century, is now a three-bedroom detached home just a few miles from the East Sussex coast.
On the picturesque Isle of Man, this four-bedroom character home has a ground-floor shop that's currently run as a newsagents and a flat that would make an ideal holiday let.
In a new collection of flats, this first-floor two-bedroom apartment offers ample entertaining space and a prime view of Furze Green from a private balcony.
This three-bedroom stone-built cottage currently trades as the village store with a restaurant in the annexe and family accommodation on the upper floors.
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.