Persimmon demoted from FTSE 100

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by Lin Freestone

Persimmon, the UK’s largest housebuilder by value, has fallen from its position in the FTSE 100, which was achieved in 2005, after its shares lost 3%.

This came in the middle of a dramatic week of financial woes for the country’s house construction companies. The cycle is slowing down, there is no demand and there are no mortgages.

The value of Persimmon, which was in the region of £4bn, is now nearer £1bn. It is perceived that Persimmon is particularly vulnerable because of the way it operates.

It is not a property company but a housebuilding company. Unless it can sell the houses it builds, it does not flourish.

Earlier this year, Persimmon said it would not build any new homes on new sites until the market picks up. Work was postponed on about 30 sites across the country.

The dramatic changes in the fortunes of the construction companies has not been caused by oversupply, but by lack of liquidity in financial markets. Sentiment affects sales of houses, and sentiment in the housing market is currently bearish.

The undermining of property companies’ values and falling transactions will inevitably affect housebuilders and estate agents the most.

It is anticipated that a tightening of supply may underpin the situation and halt the dramatic fall. This may be the saving grace for the UK’s housebuilding industry.

Of the house building projects already under way, it is understood that some builders are weatherproofing to shell and core and not completing the homes until they are sold.

Further bad news about the housing market came this week when the Royal Institution of Chartered Surveyors reported that the number of properties sold had fallen to a record low.

The Financial Service Authority is closely monitoring the heavy selling of shares in UK’s housebuilders, and has signalled its concern that there may be a deliberate attempt to undermine the sector.