Earl’s Court developer enters stormy waters following ‘market shock’ prediction

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Capco’s share price over the past year: Source FT markets .com

In June, Deutsche Bank’s Market Research department published a report on Capco that recommended shares should be sold in light of the Bank’s prediction their price would drop by 23% to 260 pence. This was based on a forecast that residential property prices face a 20% decline driven largely by a collapse in the buy-to-let market especially affecting prime central London new-build homes. Deutsche Bank singles out Capco from all the other developers since the nature of its development pipeline makes it particularly vulnerable to the “impending shock to the residential market”.

The report predicts that the fall in house prices will drive down the valuation of Capco’s Earl’s Court land by 65%. Deutsche Bank attaches no value at all to the West Kensington & Gibbs Green estates because it says their redevelopment is unlikely to be profitable for Capco given the amount of replacement and affordable housing involved. And because Capco does not have enough money to build the new homes, the bank expects the company will be bought out within a couple of years. Although the Bank anticipates that Capco will obtain a fresh planning permission to build even more homes, it does not think that will help much to improve the developer’s position.

Ironically, Deutsche Bank felt that Capco’s ownership of Covent Garden was a stabilising factor for the company, albeit this part of the business was unlikely to deliver growth. In fact, this week several commercial property funds have had to suspend dealings in the face huge withdrawals. This has put even more pressure on Capco’s share price, which, following the referendum vote to leave the European Union, was already on a downward trend. On the day of the referendum, Capco’s share price closed at 362.50 pence. By 8 July their price closed at 274.40 having reached a low that day of 258.40.

In March and April this year, homes in the Company’s Lillie Square development were being reserved or exchanged at the rate of slightly less than one per week. At that rate, it would take Capco 35 years to dispose of the remaining 357 Lillie Square homes and the 1,314 homes to be built on the site of the former exhibition centres. And that is before any homes are built on the estates land or the rail depot. Can even this rate of disposal be maintained in the current market?

The imminent decline in property prices coupled with the Brexit vote spell a long period of uncertainty that is likely to delay, if not put an end to, Capco’s redevelopment plans for the West Kensington and Gibbs Green estates. Under these circumstances, it seems most unlikely the redevelopment of the estates could happen. Capco has not even begun to build the first phase of replacement homes for estates’ residents and has said they would not be ready before 2019.

By contrast, our People’s Plan to make improvements and build additional homes without demolition is far more realistic, could be delivered within five years of obtaining the necessary permissions, and is supported by many residents who have directly engaged with its creation. Watch this space for details of our plan, which we shall publish soon.

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