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Top housebuilders grow land values as profits soar

The market remains stable for the larger housebuilders, with pent-up demand for housing trickling through thanks to government funding initiatives - with rumours of more to come.

The housing market has appeared something of an enigma in recent years. Though August’s new start figures from the Office for National Statistics confirmed that it remains depressed, profits at the top 20 housebuilders are improving.

Unit volumes are stagnating at around half of 2006/07 levels, in what some are calling ‘the new normal’. Yet the market is remarkably stable for larger housebuilders, with strong potential for growth as planning changes and localism bed down.

The big players are also snapping up cheap land in the wake of the credit crunch - though such moves represent a threat to the survival of smaller companies.

Although house prices are dropping around the country, even showing signs of weakness in London, mortgage lenders are warming to new-builds, as pent-up demand starts to trickle through and builders adapt their offerings to larger developments with healthier returns.

Government initiatives are easing the situation. Funding for Lending, though still in its early stages, has also enjoyed success in bringing down the costs of NewBuy mortgages.

FirstBuy meanwhile has been praised for taking the stigma off first-time buyers for many lenders, but the scheme needs to be extended past the March 2013 deadline if the boost is to continue.

With the government increasingly recognising the role of housebuilding in driving the economy, a flurry of initiatives have emerged in recent months, ranging from softening section 106 requirements through to guaranteeing finance for ‘shovel-ready’ projects.

There may be further carrots from Westminster on the way, aimed at persuading builders to prioritise volume over margins, with reports of a “Letwin plan” to underwrite housing association bonds expected to hit the front pages in September or at the time of the autumn statement.

Bank challenges

With the eurozone crisis hanging over the country and continuing to spook the banks, challenges still exist. Kier’s housebuilding division saw its pre-tax loss deepen to £39.4 million in its 2010/11 results.

Managing director of affordable homes Chris King says sales were “steady but fragile”, hampered by banks “stockpiling war chests, just in case”.

Mr King says it is “absolutely imperative” that FirstBuy is extended to try to get credit flowing again, and that Funding for Lending is “a great start that’s actually getting banks to loosen their policies”.

Redrow group managing director John Tutte meanwhile is optimistic. “We haven’t been looking to increase volumes; we’ve been looking to change product mix to family housing - there’s been a huge switch from apartments to housing.

“That’s outside of London, the super-prime market,” he says.

But Mr Tutte is frustrated with the banks making conditions in the buy-to-let market more hostile, and with a lack of appreciation of the merits of home ownership.

“This is a government which does recognise that housing is economically good as well as socially good, and I think it has worked hard,” he says. “But it needs to help banks to make products more competitive.”

Others are mindful of different dangers. Federation of Master Builders chief executive Brian Berry thinks that although the green construction and retrofit markets will increasingly provide opportunities, the industry risks a skills shortage.

“Social housing has been 20 per cent lower than a year ago, and big projects are coming to an end, like the Olympics,” he says.

“There’s also a marked fall in repair and maintenance work due to local authorities cutting budgets and responding to a new government, while households have less to spend.

“The government is starting to recognise the value of the sector, but a coherent plan for growth is needed.”

Click on table to enlarge

Top 20 housebuilders crop

Tussle at the top

Barratt has pipped Taylor Wimpey to the top spot of our housebuilders table this year after the latter sold off its North American arm Taylor Morrison to strengthen its balance sheet and boost investment.

The top four have all been making positive noises over the summer, with Barratt expecting a 150 per cent rise in profits over the year.

Bullish talk also comes from the Taylor Wimpey corner, with chief executive Peter Redfern telling CN the firm is coping well and is poised for growth.

In fact, turnover across the top 20 housebuilders was 7 per cent up on the previous year according to their latest financial results, while collective pre-tax profits shot up by 322 per cent.

Galliford Try’s three-year housebuilding plan has proved a success this year, with a convincing 23 per cent rise in turnover and pre-tax profits soaring 226 per cent.

Its most recent trading update for the year to 30 June 2012 revealed a record rate of housing completions, representing an increase of 40 per cent on the previous year.

Berkeley has boosted turnover by 40 per cent to break the £1 billion barrier, with agreement thought to be near on the 2,517-home Woolwich station development. The company also chalked up the highest pre-tax profit margin on the table.

One firm to watch will be Cala, which managed to boost turnover by 42 per cent while pulling itself back into the black.

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