Private Investor: House-builder limbo - how low can they go?

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

Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own