Private equity – laughing all the way to the land bank

The double hangover from the pandemic and Brexit is proving hard to shift for FTSE 100 property companies.

In theory, housebuilders’ share prices should reflect the incredible growth in house prices seen over the last 18 months which have risen, in part buoyed by rising consumer confidence, but also due to low mortgage interest rates, low mortgage deposit schemes and the government’s stamp duty holiday. Yet instead, housebuilder stocks remain stubbornly lower than their early 2020 levels. Acquiring companies at a bargain price when they hold considerable freehold estates (the value of which is only going up in the current market) is making investing in UK propcos (or supermarkets!) a “no brainer”.

Vistry’s chairman, Greg Fitzgerald, was reported in the FT recently as saying that no private equity firms had spoken to him about Vistry, but he “wouldn’t be too surprised if that didn’t come in due course”. Other living sector clients have also been snapped up: think St Modwen, Sigma Capital and McCarthy Stone to name a few. No doubt there will be more - The Times reported in September that Bridgepoint is gearing up to exit Miller Homes, for example.

Many commentators will therefore be reflecting on whether the influx of private equity into the world of housing is necessarily a good thing for the sector. In respect of the recent Morrisons acquisition by Clayton Dubilier & Rice, Yorkshire MP Kevin Hollinrake asked Sir Terry Leahy for assurances, telling The Yorkshire Post: "I am not against private equity investment, but we have to make sure they do not benefit from any in-built tax advantage. We must do more to establish and maintain a fair and level playing field for all businesses that operate in the UK.