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Short sellers bet London home woes will spread

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Residential apartments under construction in Swindon, UK, by Berkeley Group Holdings Plc, Britain's largest homebuilder by market value, and which also has the most exposure to London.

London

SHORT sellers are betting that homebuilders will be hurt by a proposed new levy on overseas buyers of UK properties and slowing sales.

Henderson Global Investors, GLG Partners and Leda Braga's Systematica Investments have raised their wagers against residential property firms since British Prime Minister Theresa May's government said it will consider increasing the stamp duty sales tax on buyers based outside the UK.

Hedge funds are also increasing negative bets on companies building homes away from the struggling markets in London and the South-east.

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High prices, Brexit uncertainty and more taxes are all weighing on a market that's been booming since shortly after the financial crisis, thanks to low-cost credit and government programmes that promote home ownership.

Shares of Crest Nicholson fell to the lowest since March 2013 on Wednesday after it warned that the usual autumn pick-up in sales had failed to materialise amid slower demand in London and higher-priced markets in the south of England.

At its 10 most challenging sites in and around the UK capital, the company's sales are about 30 per cent lower than the equivalent period last year.

Short sellers borrow shares and sell them, aiming to buy them back at a lower price. They have cut their bets against Crest Nicholson in recent weeks as the stock plummeted. The money managers got another boost when the homebuilder cut its margin target and said it would sell more homes in bulk, which tends to yield lower prices, dispose of some land and slow its building rate. The stock fell as much as 15 per cent on Wednesday.

They have also been profit taking at Berkeley Group Holdings, the homebuilder with the most exposure to London, where short interest has declined to 2.1 per cent of outstanding shares from a 12-month high of 3.1 per cent in September. BLOOMBERG