Commercial insurance article archive
UK housebuilders report trouble ahead
The UK's housebuilding industry could be facing tough times ahead in the wake of the credit crunch and moderating condumer demand. While some companies appear to be putting a positive spin on present conditions, a number of housebuilders are said to be seeking a financial boost from the private equity sector.
A report in the Observer recently highlighted the potential problems faced by several housebuilders, noting that some which have chosen to borrow in order to achieve further development in recent years may soon be feeling the financial pinch of fewer sales causes higher levels of debt.
One of the UK's largest housebuilding firms Bovis Homes stated that the housing market was affected by a "tightening" of interest rates during the first half of last year followed by the "banking crisis" which struck towards the end of the year.
Malcolm Harris, chief executive of the company, said: "2007 was a challenging year for the industry following several interest rate increases, allied with a reduction in availability of funding, particularly for first-time buyers.
"Looking forward, although the long term position relating to supply and demand has not changed, the current housing market is weak." The firm's performance during the spring will prove "critical" in terms of determining the volume outcome for 2008, Mr Harris remarked. "For the year as a whole, unless decisive action is taken now to reduce interest rates and more normal conditions return to the mortgage market, it is likely that volumes will be well below those achieved in 2007," he added.
The firm was one of several, including Taylor Wimpey and Persimmon, to see its share prices take a hit as a result of both the slowdown within the market and the predicted decline to come. According to a recent report by Sharecast, Taylor Wimpey, one of the largest housebuilding firms in the UK, has been perilously close to losing its FTSE standing.
According to a report by the Royal Institution of Chartered Survyors (Rics), the stock of houses rose to a level last seen a decade ago, with unsold property on surveyors' books rising by over 8.5 per cent in February - the fifth consecutive monthly increase over eight per cent.
The institution also noted that interest from new buyers also fell in February, with 37 per cent more chartered surveyors reporting a fall as opposed to an increase in enquiries. This compared with 35 per cent a month earlier.
Rics suggested that prices within the residential property sector were also in decline, yet this was a consequence of weaker demand instead of an increase in the number of properties coming onto the market.
Commenting on the market, Rics spokesman Ian Perry said: "Confidence in the market is clearly having an effect on prices. A combination of a lack of available finance and weakening demand is causing a slow drop in capital values. "While there is very little new supply coming onto the market, it is unlikely that there will be significant price drops in the short-term but the build up of unsold stocks will encourage buyers to negotiate lower asking prices."
And it is this that the Observer suggested is causing further headaches for homebuilders, with many forced to offer incentives to buyers having already committed to completing new projects. According to the newspaper, Taylor Wimpey began offering buyers the opportunity to sell their property and have all their costs paid, including stamp duty and other legal costs.
Following the publication of its 2007 financial results, the firm's chief executive Pete Redfern said earlier this year that the company was expecting "a more difficult trading environment in the UK in 2008".
Yet despite the firm announcing that it had lost a third of its profits following a £283 million write-down, having undertaken a review of its land holdings in the US, Mr Redfern remained upbeat.
"We have actively positioned the business for more challenging conditions and we are well placed for the future with a strengthened land bank, excellent momentum and a robust financial position," he stated.
This view seemed to be shared by Bovis, with Mr Harris commenting: "Looking beyond 2008, the Board believes that with its strong land position, healthy balance sheet, and highly experienced management team, the group is well placed to benefit when sentiment improves."
So despite the apparent doom and gloom for the housebuilding industry, it seems several view 2008 as a momentary blip. However, as economic conditions continue to worsen, their impact on the housebuilding market could be profound.
07 Apr 2008