Mike4 wrote:Rather than investing even further in property directly, I am considering buying shares in a house builder, given it is a business I've been loosely involved in all my life and know a little bit more about than yer average Joe.
This is all prompted by the recent thread by Santy here:
viewtopic.php?f=13&t=29223AiY suggests a new thread in which he offers to post up some figures hence this thread, thank you AiY.
Where I fall down is I don't know how exactly to buy individual company shares. I opened an ISA account with Vanguard last tax year and filled it up for last tax year, but scrumpyjack thinks they are not a platform I can use to buy individual shares. I hadn't fully grasped this when I opened my account or I might have chosen a different platform. (Is platform the right term?)
Anyway, back in the 90s when I dabbled briefly with tech shares (and got my fingers burned), I think I had an account with Hargreaves Landsdowne and I wonder if that is still open. Will they do? Suddenly I'm all interested in those HL-bashing threads on here
This is is the wrong board but necessary imv in the context of your question. Buying shares is simply a matter of registering with a broker, either on line or the old-fashioned way of contacting a stockbroker. On-line, all that's necessary is to provide details to open an account then add some money to the account to buy the shares (the money can be withdrawn when you sell or kept in the account pending. HL for example require a minimum balance of £50. A stockbroker would probably want to meet /interview you first to ascertain your risk profile. When I did that I hadn't clue what the stockbroker was talking about. Risk, what's that?
It then becomes a question of which of the quoted housebuilding to buy shares in. I appreciate you are familiar with the finished product (ie, the property) but I would think, correct me if this wrong, the bulk of your experience is sorting out problems with the boiler etc after the property has been sold to an owner-occupier or investor.
The house builder either buys land or takes an option to buy. Whether the land comes with planning permission or has to be obtained depends. Often the landowner will get outline consent before marketing the proposition for sale. Even then the house builder might try to improve upon the consent. The house builder will either buy direct from the landowner or an intermediary developer such as Gladman. G, for example, gets consent for the landowner then sells the land and consent to the house builder. Despite being a successful developer, G is unpopular with local residents and planning authorise generally and local residents considered it an opportunistic developer because it has the resources to overcome local authority refusals of consent and go to appeal. Local authorities are generally reluctant to refuse consent because if on appeal the appellant wins then the LA would probably have to pay the appellant's costs. Under the development plan for a county, the planning authority has to demonstrate 5 years supply of land to meet Government targets …. In Herefordshire, for example, G got planning consent on appeal despite fierce opposition: it reasoned that the LA couldn't meet the government targets on the land which the council had allocated for residential development as the council didn't own the land, whereas the site which G had was available. Search on-line for Gladman and planning law and you'll find a host of decisions.
For large housing estates, the builder will often build in stages over many years. that is partly to avoid swamping the local market and create an oversupply; also to stagger the capital gain tax for the landowner, assuming the house builder has an option to buy. The advantage too of an option to buy is that the house builder would obtain the planning consent knowing that the landowner cannot sell the land to someone else. Point is that anyone can apply for and obtain planning consent even if they don't own the land in question.
Consent comes in two stage. Outline consent and detailed. Outline is normally subject to conditions, most of which would have to be satisfied to enable detailed consent to be granted. Even with detailed consent, there can be conditions that have to be met before any work can commence. All that takes time which is why house builders generally acquire land years in advance of building on it. the size of a house builders "landbank" is an important factor when evaluating shares. Land values increasing does not mean the price of the house has to increase, that depends upon the strength of the selling market at the time. The longer the house builder has owned or has had the option the more profit can be made on completion of the development. The difficulty with long-term forward-planning is estimating what the market might be like and the prices that can be obtained when the property is marketed for sale. Generally, marketing starts when the estate roads are constructed. The asking price is based upon the housebuilder's own estimation with help from local estate agents and includes a margin above the minimum profit margin: local estate agents might also advise on house design and specification. Recently I found out that the reason my house has a third reception room is that originally the developer planned a integral garage but was advised otherwise by a local agent. (I do have a garage but not integral.)
Depending upon the size of the estate, the mass-market house builders tend to have a minimum number requirement so as to enjoy economy of scale for construction costs and labour, much of which is sub-contracted. A 1000 central heating boilers for example would be cheaper per boiler pro-rata than 50.
Barrett Homes introduced the idea of a fully-fitted property, kitchen appliances, etc. Government initiatives for house selling are popular with house builders. Stamp duty reduction is an obvious one. Help to Buy enables house builders to up the price because people that can only afford to buy because they are being subsidised aren't as fussed at what they pay. Investors are only interested in the letting potential and resale value so to an extent also overpay because they aren't going to live in the property themselves. Cash buyers for occupation often overpay because their thinking is subjective, rather than objective. New property has a premium to second-hand, even though second-hand property generally increases in value more so over time. You will know from your experience, i am sure, that the standard of construction of new builds can leave a lot to be desired. i am told the typical new house has a life-expectancy of two 25 year term mortgages.
House builders share prices tend to do well in a buoyant property selling market and slump when the selling market is flat or depressed. As no one knows for sure when the market is likely to be buoyant the yield is higher because of the risk.
Have fun.