Berkeley maintains expectations despite housing market weakness

Berkeley Group has upheld annual profit guidance despite the value of home reservations plummeting in recent months.

The blue-chip listed housebuilder anticipates earning at least £1.05billion in pre-tax profits for this year and the next, compared to £604million for the 12 months ending April 2023.

Berkeley told investors on Friday that weaker trading conditions had been offset slightly by a solid opening forward sales position, with more than 90 per cent of turnover for the 2024 financial year exchanged. 

Resilient: Berkeley Group has upheld its profit guidance even though it revealed that the value of home reservations had plummeted in recent months

The company noted that pricing levels had remained resilient because of a significant shortage of housing stock in the UK.

Yet underlying private sales reservations – whereby someone reserves the right to acquire a property for some time – over the past four months were some 35 per cent down on the equivalent period last year.

Demand for new-build homes has contracted significantly as mortgage rates have surged due to Bank of England base rate hikes in efforts to dampen elevated inflation.

Since December 2021, the central bank has raised interest rates on 14 successive occasions, from 0.1 per cent to 5.5 per cent today.

An average two-year fixed rate mortgage now stands at 6.67 per cent, according to financial data provider Moneyfacts, having been 2.38 per cent two years ago.

The increasing cost of home loans has made Berkeley much more cautious about constructing new developments.

But the Surrey-based firm also said investment had been deterred by ‘the complexity and protracted nature’ of the planning system and ‘lack of clarity’ regarding regulatory changes impacting the industry.

As a result, it did not make any land purchases in the latest quarter.

Berkeley Group shares were 0.5 per cent down at £39.51 on mid-Friday morning, although they have still grown by 13 per cent over the past year.

Richard Hunter, head of markets at Interactive Investor, said: ‘Berkeley is far from being immune to the wider issues of mortgage availability and affordability, planning bottlenecks, uncertain consumer propensity to buy and a cloudy outlook.

‘Even so, the shares have performed well in relative terms to many of its peers although the undemanding valuation suggests some concern on the horizon.’

Berkeley’s trading update follows similar downbeat announcements by other UK property developers in recent weeks, including Bellway, Persimmon and Crest Nicholson.

On Wednesday, Britain’s largest housebuilder, Barratt Developments, revealed it would halt share buybacks and cut dividend payments because of the uncertain outlook for the market.

Barratt revealed its net private reservation rate slumped by about a third last year, which it partially blamed on the Help to Buy Scheme closing and former Prime Minister Liz Truss’s now-infamous mini-budget in September 2022.

Yet the firm’s turnover slightly expanded to £5.32billion thanks to a bumper private order book position and average selling prices rising despite a broader slowdown in the UK housing market.

Figures from Halifax released on Thursday showed that UK house prices declined by 4.6 per cent in August, the fastest year-on-year decrease in 14 years.

This post first appeared on Dailymail.co.uk