Iran war ‘heavily’ affecting property confidence

Property developer Berkeley Group has said the Iran war is “weighing heavily” on market confidence and could push up inflation.

The FTSE 100 firm told shareholders on Friday: “The emerging situation in the Middle East is weighing heavily on risk sentiment and we await to see the impact of this on the market.”

“While reaffirming guidance, we are aware of the risk of a further deterioration in macro conditions with the potential for higher inflation in the near term and for interest rates to remain higher for longer.”

Berkeley’s share price fell two per cent on Thursday morning to 3,676p, leaving the stock down six per cent in the year so far.

The risk of inflation posed by the Iran war has panicked an already fragile housing market, prompting lenders to pull mortgage deals at the fastest pace since Liz Truss’s infamous mini-Budget. 

Shares in property giant Savills slid by as much as eight per cent yesterday despite the firm posting solid results and completing a $1.1bn takeover of a US real estate investor. 

Savills warned it is “difficult to assess” the impact on its Middle East operations as the estate agent giant braces for the fallout from the Iran war.

The firm said it employs around 800 staff in the region, which has historically been a key area of growth, accounting for up to 5 per cent of its pre-tax profit.

Despite the turbulence, the estate agency said it would double down on plans to invest in the region: “In the Middle East, we will continue to improve the breadth of our service lines in both transactional activity and consultancy.”

Research from the Royal Institute of Chartered Surveyors showed that the property market is struggling to gain momentum this year and took an early wobble from events in the Middle East in February. 

Chris Beauchamp, chief market analyst at IG, said: “Berkeley has become the latest firm to see its shares fall after a good set of results. Investors are more worried by rising oil prices and higher energy costs than anything else, and along with today’s poor GDP figures there is scant reason to be optimistic about the UK economy.

“Consumer budgets are likely to be squeezed hard in coming months, slowing activity in the housing market dramatically.”

London market a reason for optimism

But Berkeley said the “resilience” of the London market leaves its outlook positive, and the firm is sticking to its £450m pre-tax profit guidance for this year.

The company said: “It is a global city of tremendous resilience, ingenuity and creative power, and these fundamental strengths endure. […] For customers with liquidity, the current market dislocation presents a good opportunity to buy.”

Berkeley praised the “Homes for Londoners” fund, which stands at £736m contributed by the government and City Hall, as containing “all the right ingredients” to address the uncertain housing market. 

Trading in the market has been damaged by the effect of “geo-political events and macro-economic uncertainty” on consumer confidence, the developer said.

But the firm said its volume of sales enquiries is “good” and the number of underlying reservations is recovering towards the level seen before the period of speculation around last year’s Budget, which stalled the market. 

The company is on track to meet its £300m net cash target and has returned around £190m to shareholders year to date.