Housebuilder recovery 'could take seven years'

By KARL WEST
Updated: 18:00 EST, 14 January 2010

It may take up to seven years for sales of new homes to return to peak 2007 levels as builders focus on repairing profits rather than chasing volumes, said Barratt chief Mark Clare.

The executive pointed out that housebuilding is a capital intensive industry which requires companies to fork out huge sums up front to pay for land, labour and materials.

At the moment, most companies in the sector are focused on repairing battered balance sheets and are very wary of shelling out too much cash too far in advance of making a sale.

Analysts estimate that about 100,000 homes were built in England last year, well short of the 160,000 constructed in 2007

Clare said: 'This (recovery) is going to be relatively slow and only when there is real certainty will people start buying more land to fulfil more than their current requirements.

'It's all about margin recovery. To chase volumes in the current market would be folly.'

As a result, Clare reckons it will take the industry five to seven years to regain the giddy heights of 2007's sales peak.

Analysts estimate that about 100,000 homes were built in England last year, well short of the 160,000 constructed in 2007.

Clare made his prediction after some economists at a monetary policy roundtable held at the Bank of England predicted that the recession would lead to a protracted period during which consumers would be averse to borrowing and would seek to cut their debts.

They cited examples of previous major balance sheet restructurings - in the UK, Japan, Sweden and Thailand - which had lasted about six to eight years. This is a similar period to the recovery pencilled in by Clare.

In a half-year trading update, Barratt revealed it would be hit by £130m of exceptional costs in the period, mainly related to its £720m fundraising through a placing and rights issue in November. This includes the fat fees paid to its investment banks and lawyers.

But, it will also include a £4.8m charge for the sale of a commercial property in Glasgow, called Atlantic Quay 5, for £25m.

Selling prices rose 4pc in the half to an average of £167,000, as Barratt sold more houses than flats. It forecast prices would rise by 10pc by the end of its financial year.

The builder (down 2.2p at 137p) delivered 5,028 homes in the period and is on track to meet its annual target of 12,000, with total forward sales up 43pc at £651.2m compared with a year ago.