Switch from housebuilders to contractors, says Westhouse Securities

30th Jun 2014 11:13

Investors should switch their preference from housebuilders to contractors, according to Westhouse Securities, which said it sees downside risks in the housing sector.The broker said housebuilders are faced with the potential for tougher regulation, in particular tighter mortgage lending, as threatened by UK Chancellor George Osborne in his Mansion House speech on June 12th."We are hearing increasing anecdotal evidence that the London housing market has already started to turn, with estate agents suggesting there have been fewer viewings and offers, as well as lengthening transaction times and some price reductions," Westhouse said.Despite these concerns, shares in the housing sector have rallied strongly over recent sessions after proposals from the Financial Policy Committee (FPC) to cap high loan-to-income mortgages were "lighter than many feared", the broker said. However, it said that FPC's move was "squarely aimed at the London market" and could still affect the volume of mortgages under the Help to Buy scheme for new homes."An additional concern is that land and material prices appear to be rising irrespective of any slowdown in transactions. If these trends continue to diverge, we believe housebuilders could be caught, once again, in a squeeze on profit."As such, investors are recommended to use the post-FPC rally as a "selling opportunity for housing-related stocks", including merchants, distributors and estate agents, Westhouse said.The broker said that the contracting sector is more favourable with the "political imperative [...] shifting back to infrastructure", as evidenced by Osborne's proposals to improvement transport links in the north and China's agreement to contribute funding to High Speed 2 and new nuclear power stations."We are more bullish on contractors, in particular Kier 'buy'), which we believe is particularly well placed for some of the high profile initiatives from government and has endured the recession in a relatively strong shape."BC