Headlines might be mixed, but outside of the M25, housing demand remains healthy, especially among first-time buyers, says Stephen Wicks, chief executive of AIM-listed Inland Homes PLC (LON:ILD).
The market is heading towards a more balanced structure, he adds, with more renting and a shift away from a focus just on house prices.
To capture some of this, Inland has made a major investment in its own in-house construction team with staff numbers rising to 110 from 35 and some high-profile managerial appointments.
Inland has already increased the number of houses it builds but a further step-change is on the way in the next two years.
Originally, Inland specialised in land buying and selling - Wicks says the group has 100% success for planning permission applications on brownfield sites.
That’s still a good earner but the flaw is that Inland loses the development potential when it sells on a plot.
Moving up a league
Private housing and burgeoning relationships with housing associations will take the group up another level in terms of size and profitability, says Wicks.
“Traditionally we sold sites to competitors, but now we have the construction capacity we will sell a site to a housing association and enter into a turnkey build package.
“As the partnership housing is forward-funded, the arrangement will fund itself and generate cash.”
The average price of one of the Amersham-based group’s properties is £325,000 with around 60% of purchases assisted by the government’s help-to-buy scheme and activity is starting to reflect the increased headcount.
Inland had 560 private houses under construction at the end of 2017, with a gross development value of £144mln.
A further 220, worth £43mln, are under contract with housing associations.
In two years, though, Wicks expects to be selling around 1,000 properties annually, split roughly half between the private business and half housing association partnerships.
It’s a jump from 188 in 2016, but the turnkey deals with the associations underpin the expansion plans, he says.
The land sold to housing associations for the development brings in cash, while it gets paid monthly for the building programme.
“We have the land in place and there is huge appetite from the housing associations, so we are going to scale this business up very rapidly.
“There are no marketing costs, no funding costs and the cashflow reduces our gearing.”
People also underestimate just how large some housing associations have become, adds Wicks.
Planning an issue
Inland has traditionally been strong in areas just outside the M25 ring but now also has major developments underway on the south coast and Southampton in particular.
One sticking point remains the planning process, which can still take between 2-3 years, even for a company as experienced as Inland.
This is the biggest hurdle to the government’s target of 300,000 new homes a year (compared to 200,000 currently), he adds.
Inland’s interim numbers showed underlying profits rising and all numbers pointing up.
Underlying profits rose to £5.4mln (£5mln) in the six months to December while revenues rose by 88% to £61.2mln, consisting of the sale of 338 plots and £31mln from the 96 homes sold.
The forward order book for private homes was £38.9mln, while the development pipeline comprised 7,372 homes with an anticipated gross development value of more than £2.2bn.
Of those 2,328 have planning consent or are due to receive it.
At a build rate of 1,000 properties per year, it is a healthy prospective pipeline and to underline how confident the group feels, the interim dividend went up by 30%.
CEO tops up
Wicks, too, recently bought a further 100,000 shares at 60p to take his stake to just under 7%.
He believes the share price of 67.2p, a market value of £136mln, should be a lot nearer underlying net asset value of 97.6p.
The group will stick to the affordable end of the market and with its growing links with housing associations says there is a lot of growth to be had.
“We are very undervalued."