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

Housing looks promising in the medium-term

With many of the UK’s house builder shares currently trading at between a third and a half of their value compared to this time last year, investors have seen a significant tumble in the value of their shares, says Nigel Shilton

Allied to this fall we are starting to see signs of financial stress as sales volumes decline, property valuations fall and the prospect of breaching banking covenants increases. So, is it all gloom or is there light at the end of the tunnel?

While property stocks may appear unattractive, given the fundamental principles of supply and demand, many commentators argue that shares in house builders represent good value in the medium term.

Consider for a moment, other than the ‘credit crunch’, what has actually changed?

  • Interest rates are still at historically low levels, and look set to remain so for the foreseeable future.

  • While slightly more expensive than in recent times, mortgages are still available and falling interest rates should help to soften the blow of the reduction in special deals.

  • Employment is still high.

  • Immigration continues apace, increasing pressure for more accommodation.

  • There is still a shortage of land in prime locations for development.

  • The planning process is still slow and unlikely to improve in the short term.

So, while the sector is experiencing a difficult time, the underlying indicators are not pointing to a wholescale crash.

Those businesses that have strong financial and operational management will be well placed to weather the storm and reap the rewards once the financial markets return to normal.

Indeed, for those businesses with good funding and access to cash, the current downturn may present one of the best opportunities in a long time for businesses to replenish land banks at sensible prices, thereby providing a platform for growth.

But we are seeing signs of stress among those businesses that have not applied the same degree of rigour to their financial and operational management.

For those businesses, strong and decisive action must be taken now to ensure that they are better prepared to cope with the uncertainty in the market.

Nigel Shilton is construction partner at Deloitte

Figures point to downturn in housing

The number of applications to build new homes dropped precipitously over the last year, according to NHBC statistics.

The housing body recorded that the number of applications to start building in the three months between December and February was down 22 per cent on the same period a year ago, down to 35,780 from 45,613.

The largest falls were in private sector homes where applications fell 24 per cent. There was a smaller fall of 11 per cent in the number of housing association homes.

Imtiaz Farookhi, NHBC chief executive, said: “The number of registrations by house builders has fallen. Completions also fell. Our statistics show a year-on-year decline of four per cent.”