Housebuilder Berkeley has warned the delivery of new properties is under threat from the planning environment and regulatory uncertainty, as it reported near 10 per cent profits before tax this year.
More than 4,000 homes were delivered by the firm with over 85 per cent being on regenerated Brownfield land. It also said it’s delivering 10 per cent of London’s new private and affordable homes, which supports 27,000 jobs a year.
This comes as the Bank of England has raised interest rates on 12 successive occasions – with a 13th almost certainly nailed on following Wednesday’s disappointing inflation figures.
With rates set to go up again, investors said they were fretting over the impact on housebuilding, with borrowing becoming more expensive and people less likely to buy new homes with mortgage rates steadily increasing.
This morning, Berkeley’s share price was down more than three per cent at the open.
Berkeley’s share price has been languishing at around a quarter below their all-time peak in February 2020 – despite bosses ramping up completion and profit targets and hiking the outlook on dividend payouts.
With profit before tax for the financial year ending April 30 2023 reaching £604m, its chief executive Rob Perrins said they were “in line with the guidance provided at the start of the financial year” and that the firm had “maintained our shareholder returns programme and increased the net cash position”, now at £410m.
“This is a very strong performance by our sales and construction teams, given market conditions and changing building regulations, and reflects the resilience of Berkeley’s business model with its focus on the country’s most undersupplied markets.”
While continuing to see “good levels of enquiry for well-located homes built to a high standard of design and quality” he said the firm recognises |that the market is likely to lack urgency until there is more certainty over the trajectory of interest rates.”
He warned however, that challenges faced by the industry “is increased when set alongside the uncertainty from a continually evolving and increasingly burdensome regulatory environment.
“While well-intended, this is constraining investment into brownfield regeneration and homebuilding. If housing delivery is to be maintained the planning system needs to respond to these challenges and certainty is needed in the regulatory environment as a matter of immediate priority.”
Looking ahead, Berkeley is “well placed to meet our guidance for the next two financial years…but will remain cautious in committing to new investment until the conditions for growth are in place”.
Experts were quick to praise Berkeley for its pre-tax profits despite the market environment.
Richard Hunter, head of markets at interactive investor, said “Berkeley is showing some dogged resilience against an ever-growing list of challenges which are blighting the sector as a whole.”
“The apparently slowing planning process is being exacerbated by an increasingly regulatory environment, which is putting pressure on the group’s ability to deliver new homes, especially those in the affordable bracket. It is also crimping general investment into such properties.
“At the same time, the increase in Corporation Tax is another headwind, as has been an increasing level of build cost inflation.”
He said the issues “are quite apart from the other sector-wide challenges”, including an “increasingly toxic combination of persistent inflation, the propensity of consumers to buy given the tightening economic environment and a rising interest rate environment which puts further pressure on affordability (and indeed mortgage availability), have all weighed.”
Meanwhile, Andy Murphy, director at Edison Group said they were “a strong set of results”, while noting Perrins’ “cautious tone”.
“The company is having to swim against the tide of new regulations, an onerous planning system, and continued uncertainty over interest rates – which inhibits buying.
“This gloomy market outlook was reflected in the Berkeley Group’s results” he added, saying “the Berkeley Group lacks confidence in the market, and prefers to keep cash-on-hand to weather future difficulties.
“Overall, this is a positive set of results for the company – but it is a company that feels it is bumping up against the limits of what it can currently achieve in this market environment.”