Housebuilders should be re-evaluated
PERSIMMON, the UK’s biggest housebuilder by value, is experiencing improving fortunes like most in the sector – but it is still a shadow of its former self.
Pre-tax profits, which were 55 per cent higher at £148.1m, are nothing compared to the £600m or so that was the norm in 2006.
Still, the outlook for housebuilders is quickly getting better. Conditions in the market are hardly buoyant, but they have remained stable for the last 15 to 18 months, allowing Persimmon and its rivals to invest in new projects.
Asking prices are pretty stagnant, but housebuilders have managed to push up their average selling price by changing the types of properties they develop. Out with the endless new-build flats in northern towns, which are struggling to find first-time buyers, and in with semi-detached house for affluent southerners.
A change in government policy has helped. The coalition has reformed a Labour policy that encouraged housebuilders to have around 60 per cent of their development portfolios as flats.
More developments and higher asking prices have pushed up profitability, but the real reason for improving margins is new land deals.
Old land – bought at the top of the market and subsequently written down – is falling out of the equation, to be replaced by newer, more profitable land buys. That’s why margins have gone from virtually zero to between 15 to 17 per cent for most housebuilders.
Old fears die hard, meaning shares in many housebuilders are still cheap. The entire sector deserves to be re-evaluated.