Housebuilder Berkeley in land investment freeze as rate hikes bite

Housebuilder Berkeley in land investment freeze as rate hikes bite

  • Group said it did not invest in any new sites between May and August
  • High interest rates, inflation and ongoing issues with planning system the issue
  • Soaring interest rates have driven up mortgage costs for potential buyers

One of Britain’s biggest housebuilders has stopped buying land on which to build new homes due to the ‘considerable uncertainty’ gripping the economy and complex planning rules.

Berkeley Group, which operates across London and the south-east, said it did not invest in any new sites between May and August, due to high interest rates and inflation and ongoing issues with the planning system.

Soaring interest rates have driven up mortgage costs for potential buyers while high inflation is putting pressure on household budgets. Meanwhile, the complexity of the UK’s planning system and a lack of clarity around regulatory changes that will affect the housebuilding sector is also squeezing investment, Berkeley told shareholders.

The update came as the Home Builders Federation accused ministers of being ‘increasingly anti-development’ after ‘capitulation to the Nimby lobby’. Berkeley said it will ‘only invest very selectively in new opportunities’ to acquire sites for new projects.

‘The complexity and protracted nature of the current planning system and lack of clarity surrounding certain regulatory changes affecting our sector, at a time of considerable uncertainty for the UK economy with persistent high inflation and interest rates, continues to deter investment into brownfield regeneration and the wider housebuilding sector,’ the company said in a trading update for the four months to the end of August. 

Uncertainty: Berkeley Group said it did not invest in any new sites between May and August

Uncertainty: Berkeley Group said it did not invest in any new sites between May and August

The FTSE 100 property firm said sales over the four months were 35 per cent below the same period last year. However, it said pricing remains resilient due to a reduced supply of homes coming on to the market.

Richard Hunter, head of markets at Interactive Investor, said: ‘Berkeley Group continues to fine-tune its operations against a notoriously difficult backdrop for the sector.

‘In some ways, Berkeley is a different beast to many of its competitors, with a potential edge coming from its mix of an exposure to London and the south-east, higher-end properties and the regeneration of brownfield sites in which it is well accomplished. The group has also reined back its land acquisition, making no purchases in this period and with the intention of only investing very selectively in new opportunities.’

Rival developers have issued downbeat updates over the summer, with Persimmon, which will this month drop out of the FTSE 100, Barratt Developments and Taylor Wimpey all building fewer homes.

Barratt said this week it has implemented a hiring freeze, reducing its headcount by 6 per cent, following the market slowdown sparked by Liz Truss’ mini-budget last year. Hunter added: ‘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.’

Despite the economic uncertainty, Berkeley confirmed it expects to meet a pre-tax profit forecast of at least £1.05billion in the current and next financial years.

Berkeley said it expects forward sales of around £2billion at the end of October, compared to £2.14billion at the end of April.

The developer confirmed it has paid shareholders a dividend of 59.3p per share, totalling £63.1m, and is on track to deliver returns of £282.7m by September next year.

source: dailymail.co.uk