The Daily Telegraph
Soaring costs prompt Berkeley to cut plans for building homes
London-focused builder says it will only buy new land ‘very selectively’ as market begins to cool
ONE of London’s biggest housebuilders is slowing expansion plans amid soaring costs, as rising interest rates and stretched affordability hit the capital’s property market.
Housebuilder Berkeley Group, which builds properties in London and Birmingham, said it would only buy up new land for developments “very selectively” as the market begins to cool.
The FTSE 100 company said inflation was now running at between 5pc and 10pc as it forks out more on energy, labour and materials. It added that the wider economic environment remained “volatile”. The cautious update highlights the challenge facing housebuilders as rising interest rates and soaring energy bills begin to spark a slowdown in the property market.
HSBC last week downgraded its rating on a number of housebuilders – including Berkeley – as it warned the sector was on the brink of a downturn. Analysts forecast a 20pc slump in housing demand from the autumn onwards.
The bank said house prices in London, Berkeley Group’s core market, could drop by as much as 15pc.
New data yesterday showed UK construction activity declined for the second consecutive month in August as customer demand continues to wane.
Concerns about wider economic prospects led to a drop in business confidence and slower job creation in the sector, while firms’ purchasing activity declined, according to S&P Global.
New orders increased only margin- ally last month and posted the weakest growth since June 2020.
S&P’S construction PMI stood at 49.2 in August – up fractionally from the previous month but still a second month of contraction.
Dr John Glen, chief economist at the Chartered Institute of Procurement & Supply, said: “The UK construction sector is poised for contraction once again as rising prices for raw materials worldwide filtered into UK supply chains.
“Just 14 months since the sector’s recent peak as part of the recovery from the pandemic, inflation is seeing housing and commercial building stagnate with civil engineering activity dropping significantly.”
Despite sector headwinds, Berkeley said it expects pre-tax profits of £600m for the year to the end of April 2023 with most of the earnings falling in the second half, and £625m to the end of April 2024. That would be a significant step up from the £551.5m profit posted in the previous 12 months as the housebuilder continues to cash in on the recent house price boom.
House prices grew another 10pc in August, according to the latest figures from Nationwide, though this was slower than the 11pc rise posted the previous month.
Berkeley said: “The good level of demand continues to support pricing above business plan levels, which is sufficient to cover cost increases on a blended basis across Berkeley’s developments.”
The company faced a significant investor rebellion over its pay policies at its annual shareholder meeting yesterday. Almost 40pc of votes went against Berkeley’s new pay proposals, which could see chief executive Rob Perrins earn up to £8m a year if long- term share price targets are hit.
Berkeley said it “recognises that developing a new remuneration approach that meets the needs of all shareholders is difficult” but it believes its new policy “represents further alignment with shareholders”.
The company said: “The remuneration committee is grateful for this engagement and we will continue to consult with shareholders and proxy advisers and will consider the full range of feedback as we implement the company’s new remuneration policy.”
Despite yesterday’s rise, Berkeley shares have dropped 16pc since the start of the month amid a worsening outlook for the property market. Price growth is slowing as the Bank of England hikes borrowing costs.
Berkeley said it “is still targeting to be working capital neutral over the course of the current and next financial year, in line with its guidance at the year-end.”
Shares in Berkeley closed up 3.7pc.