- Berkeley Group Maintains Profit Forecast Amid Property Reservation Decline
- Challenges in the UK Housing Market: Rising Interest Rates and Mortgage Costs
- Market Concerns and Caution in Land Development Among Property Developers
Berkeley Group has maintained its annual profit forecast despite the recent decline in the value of property reservations.
The blue-chip listed homebuilder anticipates pre-tax profits of at least £1.05 billion for this and the following year, compared to £604 million for the year ending April 2023.
Berkeley informed investors on Friday that weaker trading conditions were partially offset by a robust opening forward sales position, with more than ninety percent of turnover for the fiscal year 2024 already exchanged.
Due to a severe lack of housing stock in the United Kingdom, the company reported that pricing levels had remained stable.
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 percent down on the analogous period last year.
As a result of the Bank of England’s efforts to combat soaring inflation, base rates have risen, resulting in a sharp decline in the demand for newly built residences.
Since December 2021, the central bank has increased interest rates fourteen times, from 0.1% to 5.5% as of today.
According to financial information provider Moneyfacts, the average fixed-rate mortgage for two years is now 6.67 percent, up from 2.38 percent two years ago.
The rising cost of home loans has made Berkeley considerably more cautious about developing new land.
However, the Surrey-based company also stated that investment had been discouraged by ‘the complexity and protracted character’ of the planning system and ‘lack of clarity’ regarding regulatory changes affecting the industry.
As a consequence, it did not make any land purchases in the latest quarter.
Berkeley Group shares were 0.5% lower at £39.51 in mid-morning trading on Friday, despite having gained 13% over the past year.
Richard Hunter, director of markets at Interactive Investor, stated, “Berkeley is not immune to the broader issues of mortgage availability and affordability, planning bottlenecks, uncertain consumer propensity to purchase, and a cloudy outlook.
Despite this, the stock has performed well relative to many of its competitors, but the undemanding valuation suggests that there may be cause for concern shortly.
Berkeley’s trading update follows similar downbeat pronouncements by other UK property developers in recent weeks, including Bellway, Persimmon, and Crest Nicholson.
Due to the uncertain market prognosis, Britain’s largest homebuilder, Barratt Developments, announced it would cease share repurchases and reduce dividend payments on Wednesday.
Barratt disclosed that its net private reservation rate decreased by roughly a third in 2018, which it partially attributed to the Help to Buy Scheme’s closure and the now-infamous mini-budget proposed by former Prime Minister Liz Truss in September 2022.
Despite a general decline in the UK housing market, the company’s revenue increased marginally to £5.32 billion due to a robust private order book position and rising average selling prices.
House prices in the United Kingdom fell by 4.6% year-over-year in August, according to data released by Halifax on Thursday. This is the quickest year-over-year decline in the past 14 years.
