LONDON British housebuilders might be witnessing more signs that their share prices are overheating after a blistering four-year rally with negative bets against Berkeley surging, while "Brexit" concerns could further hit the sector.
The British property market has been fuelled by foreign buyers from places like China, Russia and the Middle East, who grabbed huge swathes of property in the capital. That, coupled with market speculators buying homes and demand far outstripping supply, sent London prices skyrocketing.
However, shares in some housebuilders could be impacted as growth in the construction industry slows, while Britain's referendum on its European Union membership on June 23 - with rejection dubbed as "Brexit" - could also affect demand, said analysts.
The Thomson Reuters UK Housebuilding index is down 7 percent this year, against a flat FTSE 100 index, after surging 350 percent in the past four years on the back of record low UK interest rates and several government schemes to boost the housing sector.
Shares in Berkeley, Barratt Development, Taylor Wimpey and Redrow are down 7-14 percent in 2016.
Berkeley shares fell on Friday to underperform a rise in the broader FTSE 100 index, even as the firm said it was seeing good demand for its properties.
Markit data showed that "short interest" - which measures the number of shares lent to speculators betting on a fall in the stock - in Berkeley had surged to nearly 5 percent of the company's total shares available for loan, against just 2 percent on March 1 and 0.8 percent at the start of 2016.
"This bear raid, which comes on the heels of a sharp retreat in Berkeley's shares since mid-December, represents the first time in over five years that short sellers took a position of about 5 percent of shares outstanding in a UK-listed homebuilder," said Markit analyst Simon Colvin.
"Despite the fact that the recent bearish sentiment has been isolated to one London-centric developer, indications are that the overall sector is slowing," added Colvin.
A recent survey showed growth in Britain's construction industry hit a 10-month low in February, with housebuilding expanding at the slowest pace since June 2013, when Britain's economic recovery was starting to take hold.
Jefferies analysts said Berkeley shares were "not the appropriate financial instrument to short in order to play the theme of alleged oversupply of high-value homes in the Nine Elms and Battersea area", referring to a part of London which some commentators have said is emblematic of the capital's property boom.
According to Nationwide, London was the strongest performing region for the fifth year running in 2015, with average house prices up 12 percent year-on-year and 50 percent above their pre-crisis peak in 2007. London homes are overwhelmingly rated as expensive, with a median of 9.0 on a scale of one to 10, ranging from very cheap to very expensive.
Brokerage Peel Hunt also advised investors to ignore the short-term negative sentiment and focus on Berkeley's track record, yet some analysts remained cautious on the sector.
IG analyst Chris Beauchamp said the sector was now looking slightly overpriced.
"Fundamentals are now much more demanding and require impressive outperformance, which is becoming hard to deliver now as the cycle has reached a mature stage. The outperformance has peaked, and while the sector may still continue to press higher, it is likely to see a harsher approach to weaker performance."
Analysts said nervousness ahead of the 'Brexit' referendum was also hurting investors' sentiment towards the industry.
"The uncertainty over 'Brexit' is clearly a contributing factor when looking at housebuilders, and in markets like London where foreign investment makes up a significant proportion of demand, the effects are likely to be most accentuated," said Kevin Doran, chief investment officer at Brown Shipley.
"Our base case is that the UK remains in the EU, however the contest will likely be a close run thing, and with the 'leave' camp likely to make the most noise as we approach, we would be surprised not to see increasing volatility across the sector."
($1 = 0.6921 pounds)
(Reporting by Atul Prakash; Editing by Toby Chopra)