Property crash? What property crash?

The Motley Fool
Berkeley Group
Berkeley Group

Fears that Brexit could cause a fall in property prices were pushed aside today after Kennedy Wilson(LSE: KWE) reported upbeat results for its most recent quarter. It has received attractive prices on disposals and remains confident in its future outlook. However, is it too soon to assume that Brexit won't have a negative impact on the property market?


Kennedy Wilson's performance in its third quarter suggests that confidence in the UK economy remains high. It has delivered strong operational performance in the period and is ahead of its business plan when it comes to asset disposals. It continues to beat valuation estimates on its properties, while it remains confident in its future outlook. Evidence of this can be seen in the quarterly dividend paid of 12p per share, which puts Kennedy Wilson on a yield of around 4.7%.

However, it may be too soon to assume that Brexit won't negatively impact UK property prices. After all, politicians in the UK are still arguing about whether the government has the power to invoke Article 50 of the Lisbon Treaty. Therefore, the negotiating phase of the UK leaving the EU hasn't even started. As a result, the outlook for the UK property market could easily deteriorate if negotiations with the EU seem to be challenging over the next few years.

Despite this, Kennedy Wilson has a bright long-term future. It invests in a range of geographies and this significantly reduces its risk profile. If UK property performance is negatively impacted by Brexit, Kennedy Wilson may not see its share price decline significantly since it has investments in other regions that could pick up the slack. And with it trading on a price-to-earnings growth (PEG) ratio of 0.3 thanks in part to earnings growth forecasts of 20% this year and 45% next year, Kennedy Wilson has a sufficiently wide margin of safety to merit investment at the present time.

Back the housing sector?

Of course, for investors willing to take a risk on the UK property market, prime residential housebuilder Berkeley(LSE: BKG) remains a sound long-term buy. It should benefit from a weaker pound since a large proportion of its sales are generated from foreign buyers. This is a reason why Berkeley's bottom line is due to rise by 45% in the current year. This puts it on a PEG ratio of just 0.1, which indicates that even if the UK housing market undergoes a correction due to Brexit, Berkeley may still perform relatively well.

Berkeley also offers an excellent income outlook. It's due to pay out £2 per share in each of the next five years. This puts it on an annual yield of 8.5%, which is among the highest yields in the FTSE 350. And with dividends being covered 1.9 times by profit, they could rise over the long run. As such, while there could yet be a challenging period for property in the years ahead, Berkeley and Kennedy Wilson remain sound long-term buys.

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Peter Stephens owns shares of Berkeley Group Holdings. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.