Rishi Sunak’s stamp duty tax cut has buoyed a handful of Britain’s biggest housebuilders and estate agents but critics have hit back at whether the “relatively modest” savings and VAT cuts for the hospitality sector are sufficient enough.
The housing market received a boost on Wednesday after Sunak granted a stamp duty land tax (SDLT) “holiday” as part of his summer statement, which also included a £1,000 job retention bonus for employers who bring back furloughed employees and VAT cuts for pubs and tourism firms.
From 15 July property buyers will be exempt from paying stamp duty on purchases up to £500,000 until 31 March 2021.
Persimmon, Britain’s most profitable homebuilder, was one of the biggest winners on the day. Its shares shot up 2% following Sunak’s speech to hit a four-month high of £24.92 per share.
FTSE 250 housebuilder Redrow and real estate investment trust Hammerson were also cheered by the news, with the latter up 4% at one point, making it the third biggest riser in the index.
Estate agent Savills also featured among the FTSE 250’s biggest gainers, with shares rising above 3% to 821p.
“Much of the Chancellor’s plan to preserve British jobs and boost the economy had been floated beforehand but house builders, estate agents and builders’ merchants all have something to smile about,” AJ Bell investment director Russ Mould said.
Housing recovery depends more on sentiment than ‘relatively modest SDLT saving’
Taylor Wimpey and Barratt Developments had already priced in the stamp duty cut, which was leaked on Monday, and thus moved very little on the day.
Though Jupiter head of UK alpha Richard Buxton (pictured) was pleased by the government’s decision to lift the stamp duty threshold on property transactions from £125,000 to £500,000 for “the all-important housing sector,” he questioned how effective the measures would be.
“The prospects for transaction volumes to recover meaningfully after they fell by approximately 50% in the month of May will depend to a much greater degree on buyer sentiment about job security than on a relatively modest SDLT saving,” Buxton said.
VAT cut may not move the dial much
Similarly there are doubts the temporary reduction in VAT from 20% to 5% will cushion the economic impact to Britain’s hospitality and entertainment sectors.
“The VAT cut may entice some visitors but the Monday to Wednesday time frame and £10 limit for the month of August on dining out may not move the dial much,” Mould said. “And nor are any of those incentives likely to persuade those who are too frightened or too vulnerable to venture to such public places, or indeed those who have lost their job or are on furlough, for whom cash could be tight and eating out a luxury anyway.”
Rathbones head of asset allocation research Ed Smith agreed that while past VAT cuts during the global financial crisis have successfully stimulated growth there is no guarantee this will happen again.
“VAT cuts tend to work by the so-called substitution effect – bringing future purchases forward to today. But you can’t store up experiential purchases in restaurants or holidays, so again it may not be as effective as before.”
Mitchells and Butlers, which owns the All Bar One chain, was one of the steepest FTSE 250 fallers on the day. Its share price continued to plunge throughout the afternoon, ending the day down 9.4% at 156p.
Martson’s Brewery saw 5% shaved off its share price from the previous close, while Young’s, which is 5% owned by Nick Train, also experienced a volatile afternoon of trading with shares surging above £10 during Sunak’s speech before plunging back down to £9.90 a piece.
Airliners Easyjet and Wizz Air Holdings which had already been badly bruised during the coronavirus sell-off lost more ground on Wednesday, falling 6.7% and 4.8% respectively. Coach company National Express also tumbled on the back of the chancellor’s announcement, with shares down 5.2%.
