Although the housing market currently makes for an uncertain environment, Capital & Counties’ most recent trading update can make many investors feel a bit more optimistic. The property manager and developer has performed quite well and has seen some very good returns in spite of the challenges in the current market. As much as investors will want to take this as further proof of the excellent defensive qualities of the property market in the UK, they may still want to proceed cautiously.
At its Covenant Garden estate, Capital and Counties has had favourable results and looks set to hit the £100m estimated rental value target set for it by December 2017. As the company appears to comfortably handle the uncertain property market in London, Capital and Counties are making easy work of the economic and political challenges witnessed in the year 2016. The company has seen the transformation of the Royal Opera House Arcade, set new tones in the rental market and also brought in new brands.
The performance of the company’s Earl Court estate has also been in line with expectations. The land holdings are being de-risked and demolition of the former Earls Court Exhibition Centres to the ground level has now gone through the first phase. By the end of 2016, Capital & Counties is hoping that it will start admitting residents to the first phase of the Lillie Square Project. There could also be more to come for the company current loan to value ratio of 20% and strong financial position are anything to go by.
Uncertainty still Persists
There are, however, signs that things could be a little tougher for the company in 2017. The referendum vote brought a lot of uncertainty but the notion that this has now passed is wrong. The real process of the UK leaving the EU is yet to start and there are many political challenges to be overcome in the near future both in Parliament and in the EU. There is a risk that the process of leaving the EU could be dragged out and this could lead to potential investors postponing their investment plans in London.
Still worth investing in
It’s obvious that at least in the near future, the property market in the UK is set for some serious challenges but investing in UK property still has the potential of being very lucrative. There is population growth in the South East and this means that the demand for property is still likely to rise. There are also signs that the UK economy could be set to become stronger and the combination of these two factors will result in a more favourable environment.
This means that investing in companies centred on the property market could be a wise move. The price to book ratio of Capital and Counties is 0.68 and this means you will have a very good safety margin. The price to Earnings ratio of Berkley is now at 6.2 and foreign investment in UK property could see it benefitting due to the weak Sterling pound. This means that 2017 could be the year to buy cheap stocks and wait to see the gains in the future.