A slowdown in London’s property market since the Brexit vote has seen Barratt Developments PLC (LON:BDEV) report a year-on-year drop in the number of homes it built in its first half.
Britain's biggest housebuilder by volume said it built 7,180 homes in the six months to December 31, down 6% on the same period a year earlier reflecting a fall in completions in the capital.
The FTSE 100-listed firm’s disappointing update comes a fortnight after its FTSE 250-listed peer Bovis Homes PLC (LON:BVS) said that its new house sales this year will be lower than expected due to completions in December falling short.
READ: Bovis to fall short of home build target …
Bovis chief executive David Ritchie quit abruptly on Monday and newspapers today reported that the desperate housebuilder was willing to pay its customers as much as £3,000 to complete deals by December 23 – even if the property was not finished.
Analysts said that the cash incentives from Bovis were part of a failed attempt by the company to meet City targets.
However, other big housebuilders, including Barratt, have distanced themselves from the claims of Bovis that it is “industry practice” to pay customers cash to complete on unfinished homes by a certain date, the Times reported today.
Demand elsewhere high …
Making no mention of the scandal in today’s trading update, despite the fall in home completions, Barratt said it still expects its first-half pretax profits to be around £315mln, a 7% increase on the same stage a year earlier.
David Thomas, Barratt’s chief executive said: “This has been another good half year for the Group. Consumer demand is strong benefiting from good mortgage availability and ongoing government support.
“Our healthy forward order book and this strong demand leaves us on track to deliver on our volume guidance for the full year.”
In its latest trading update, Barratt said: “Completions outside of London are at the highest level for nine years, offset by lower completions in London primarily reflecting the planned HY1/HY2 build programme on wholly owned sites.”
Barratt said in November that it was cutting the price of some of its most expensive London homes by up to 10% as the market cooled following property tax increases and June’s Brexit vote.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Completions in London are down more than 50% in the first half. That may be primarily due to Barratt’s build schedule, but the fact that it has had to cut prices and complete bulk deals suggests that there are underlying problems in the housing market as well.
“Those worries are weighing on the shares today, but fortunately Barratt is a lot more than a London builder. Even last year London properties accounted for less than 12% of total completions, and with completions outside London at a nine year high today, the rest of the market shows little sign of slowing.”
in late morning trading, Barratt shares were down 1.7%, or 8.5p at 492.5p. Bovis shares were even lower, shedding 3.5% or 30.0p at 812.5p.
Liberum surprised …
In a note to clients, analysts at Liberum said: “We are surprised that Barratt’s H1 sales were flat, due to volumes falling 5%.
“Management explains this is because its London build programme is second half weighted, and has stressed that volumes grew outside London.”
Reiterating a ‘sell’ rating on the stock, they added: “Barratt is not one of our preferred housebuilders as its lower margins make it more exposed to downside risk, and its relatively short landbank and high land creditors mean that it has less scope to reduce cash outflows in support of the dividend than others.”
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