Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

House builders must prepare for better times

The state of the house building sector is a puzzle, especially as the underlying fundamentals around supply and demand are strong. How long before we see light at the end of the tunnel?

The view from market commentators and participants is that we should be expecting a 10 to 15 per cent drop in sales prices this year and a further five to 10 per cent drop next year, thereby giving a two-year fall in sales prices of 15 to 25 per cent.

Some commentators are forecasting greater price falls, but the main factor driving reservations and sales is availability of mortgages.

In reality, dropping sales prices by another five per cent in the current market may generate a little more interest, but as mortgage availability becomes scarcer, playing at the margins of price discounting is having little impact.

Sales incentives, shared equity and other innovative marketing approaches are back in vogue, and if you are competing at the volume end of the market you cannot avoid investigating flexible options.

Cost reductions are being pushed through, as witnessed by redundancies, supply chain renegotiations and wholesale rationalisation.

But many companies are firm in their belief that the fundamentals are strong and the market will bounce back.

More than at any time, firms are trying to balance cost cutting with holding onto talent in preparation for the upturn.

No cash shortage

Despite the credit crunch there is plenty of cash out there. At Deloitte, there is an unprecedented level of interest from high net worth individuals, real estate funds, private equity and wealth funds looking to invest at the right price.

But the downside is that these investors are looking for 30 to 40 per cent discounts on current sales prices, which is proving unpalatable for all but the most distressed house builders.

Many of the high street lenders come in for an unfair amount of criticism. But our experience is that the banks are being pragmatic and supportive provided that the customer is prepared to be open, transparent and honest.

The most important message is to engage with your lender quickly and on an open basis.

Nigel Shilton is construction partner at Deloitte