Housebuilders cautious despite improving conditions

Published 04th Dec 2009

Housebuilders Berkeley Group and Bellway today pointed to a cautious pick-up in the housing sector after a turbulent year but warned that conditions remain challenging.

London-focussed Berkeley said market conditions were improving on a year ago but it was working from a 'very low base'.

"It is evident that the UK home-buyer is being cautious due to the lack of the 'feel good' factor and this is likely to continue until the general economy returns to sustained growth and employment starts rising again," the firm said.

The domestic market has been hit by a lack of mortgage availability although demand from rich international customers has remained strong.

The third largest developer by market value said it sold 914 units during the period at an average selling price of £299,000 compared with 968 units at an average selling price of £399,000 last year.

It saw its pre-tax profit slump 35% to £52 million in the six months to 31 October with revenue down 36% to £290.1 million.

Gary Hobbs of Fortis Private Banking says: "Overall, Berkeley has managed this downturn exceptionally well, with no write-downs to land carrying values, and looks well positioned for future growth when market conditions improve.

"However this stability has counted against Berkeley during the cyclical-recovery rally seen this year with Berkeley's shares underperforming the market by 15% over 12-months compared with Barratt +176%, Bellway +18%, Persimmon +98% and Taylor Wimpey up +278%."

Hints of optimism

Rival Bellway was benefitting from improving sentiment in the sector with reservations in the four months to 30 November up 51% on a year ago.

The group has already secured 79% of its internally forecast sales for 2010, at prices ahead of expectations. If the current market conditions persist, group operating margins will be towards the top-end of the indicated 6% - 7% range. Cancellation rates have also dropped back to more normal levels at around 13%.

It is now snapping up more land as it predicts a 10% rise in half year sales to 31 January.

However, it warns that conditions remain tough due to the lack of mortgage availability. While the market in and around London is stabilising, its northern divisions are still experiencing testing conditions.

The firm said: "Despite the Government's best efforts to stimulate the housing market through a variety of welcome initiatives, there remains a fundamental shortage of mortgage lending on acceptable terms to potential homebuyers.

"Until this is resolved and the threat of unemployment recedes, consumer confidence in many parts of the country will remain, at best, fragile."

Earlier this week, Nationwide reported that house prices are now 2.7% higher than this time last year following a 0.5% increase in values during November.

The average property increased in price from £162,038 in October to £162,764 a month later - a similar level to where average values were in early 2006.

However, the three-month rate of house price inflation - which is generally considered to be the most accurate reflection of housing market activity - dropped to 2.8% last month, from 3.5% in October and 3.8% in September.

Change at the top

Elsewhere in the housing sector, Taylor Wimpey today confirmed that Norman Askew's rein as chairman of the board of the construction group is soon to be over.

Askew confirmed his intention to stand down by the end of December 2010, giving the company enough time to select a successor and 'ensure a smooth transition,' through what he predicts will continue to be uncertain times.

He became chairman of Taylor Woodrow in July 2003 and was subsequently appointed chairman of Taylor Wimpey following the merger with George Wimpey in the summer of 2007.

Source: ' III '

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