News Column

UPDATE: Redrow Says Summer Sales Show UK Housing Market Cooling

September 2, 2014

Anthony Tshibangu

LONDON (Alliance News) - Housebuilder Redrow PLC Tuesday became the latest housebuilder to say the UK housing market is reverting to more normal levels, as it reported an increase in profit and revenue for its recent full year.

The company, which said pretax profit almost doubled in the full-year, said market conditions have returned to a more seasonal pattern of activity, meaning fewer people buying in the summer, with more in the spring and autumn. The comment comes after Berkeley Group Holdings on Monday said the UK housing market has reverted to normal transaction levels from the high point witnessed in 2013.

“If we look back a year ago we went through an extraordinary period which immediately followed the launch of Help to Buy, “ Redrow Chief Executive John Tutte told journalists in a call Tuesday.

“We found that last summer was unique in that the momentum that we saw in the spring just carried on through to the summer – so we are comparing against something that is unusual. This year the market began to quiet down in late June into July and August. But, I think we welcome a bit of moderation in the market. We are expecting sales rates to moderate from where they were twelve months ago and for us this is more stable and steady moving forward.”

Redrow, which marks its 40th anniversary later this year, posted pretax profit of GBP132.6 million for the year to June 30, up from GBP69.4 million a year earlier, as revenue rose to GBP864.5 million from GBP604.8 million.

The company is now targeting revenue of GBP1.3 billion in the financial year 2017.

Like its peers, the company has ramped up housebuilding in the face of strong demand. It said legal completions rose 27% to 3,597 compared with 2,887 a year earlier, spurred by the UK government's mortgage financing scheme Help to Buy.

The first phase of the Help to Buy scheme in England started in April 2013, making buyers of newly built homes eligible for a 20% equity loan from the government on top of their 5% deposit. The scheme has been extended until 2020 from its original 2016 end date. The second phase, which started in the autumn of 2013, guarantees a portion of a buyer's mortgage of new and existing homes and hasn't so far been extended beyond its current end date of 2016.

Official figures releases Tuesday showed that out of a 48,393 Help to Buy completions since the scheme began, 82% have been made by first-time buyers. The majority of the scheme has been taken up in the north of the country.

During the year, Redrow said 1,023 of private legal completions were made under the Help to Buy scheme compared with 82 a year earlier. Redrow said a large proportion of these were first-time buyers and over half were in the north of England.

FTSE 250-listed Redrow said the summer months of 2013 saw Help to Buy activity at its peak, with reservations running at particularly high levels. However, this year, the period from July 1 to date has seen a more normal summer selling pattern.

The sales rate for the last financial year reached a level of 0.70 per week, compared with 0.62 per week a year earlier.

"Now that Help to Buy has settled down, we do not expect any further increases in sales per outlet. Further growth in the business now needs to come primarily from growth in outlets rather than sales rate," Redrow said in its statement Tuesday.

At the period-end the company said it was operating from a total of 103 outlets compared with 92 a year earlier.

"An increase in the number of outlets is absolutely necessary to enable Redrow, and indeed the housebuilding industry, to increase the supply of new homes to meet the country's needs," the company said.

The message from the company has been reflected in UK economic data released Tuesday.

UK construction activity grew at a faster pace in August, defying expectations of a slow down, results of a survey by Markit Economics and the Chartered Institute of Purchasing & Supply, or CIPS, showed. The Markit/CIPS construction purchasing managers' index rose to 64 in August, from 62.4 in July, well above the 61.5 expected by economists. This marked the fastest rate of increase since January and the second-strongest rate of expansion since the pre-recession peak of August 2007.

The improvement was led by housebuilding again, although the rate of expansion in the residential construction sector moderated somewhat to a three-month low. Civil engineering activity rose at the fastest pace since March and commercial construction activity continued to increase at a rate that was close to its fastest pace since the summer of 2007.

Input costs across the construction sector rose at the fastest rate since July 2011, the data showed, reflecting higher sub-contractor charges. Tutte said on the conference call that the company was facing a lack of skilled workers.

However, Redrow said it is beginning to make gains in the UK capital, with its London division making its first significant contribution to the group, generating GBP124 million of revenue in the year.

“We feel confident in London and in building in London for Londoners. Our two largest sites are in Collingdale and Croydon, both of which are commuter markets, and that is where we feel comfortable. Other sites were have coming through are also of that ilk,” Chairman Steve Morgan said in the conference call.

“We are ploughing ahead with London, but we are not in the market for those high-end London schemes. We are a little bit nervous of the London market at the moment.”

“Last year, there were some companies that paid some prices for land that they will live to regret. Furthermore, the market had been entered by quite a lot of overseas funds and some who were inexperienced in the London market. So we definitely did not want to enter some of those realms of prices being paid. But generally, we feel more comfortable selling properties to indigenous Londoners where there is demand.”

The company said it did make some progress in terms of its land bank. During the year it secured a total of 6,092 new plots, of which 2,139 were converted from its forward land bank.

At the period-end the company's land bank totalled 16,724 plots, an 18% increase on the previous year. However, the average plot cost rose to GBP63,000 from GBP57,000 a year earlier, primarily as a result of a higher percentage of land being in the south.

"Market conditions have returned to a more seasonal pattern of activity. We have substantially increased our land bank, which should see a good growth in the number of outlets during the year," Morgan said in the company's statement. "This, combined with our strong order book, leaves me confident that the group will see another year of significant progress."

On the back of its performance the company increased its dividend to 2 pence from 1 pence a year earlier.

Redrow shares were quoted down 2.7% at 273.40 pence Tuesday afternoon.

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Source: Alliance News

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