A weekly news summary covering all aspects of the housebuilding industry. Available to members only.
HBF News
HBF gives evidence to the Royal Commission on Environmental Pollution
Following HBF's recent appearance before the ODPM Select Committee's inquiry on affordability and housing supply, the Federation gave oral evidence to the Royal Commission on Environmental Pollution on 5 January. The Commission is currently conducting a study on the "Urban Environment", looking at ways of promoting environmentally friendly development. The hearing provided a good opportunity for HBF to make the case for a less prescriptive approach to regulation as the best means of stimulating efficient business solutions and innovation to help deliver agreed objectives. Our arguments on this set of issues seemed to be well received.
(www.hbf.co.uk)
Company News
Listed home builders re-classified
As part of a reclassification of various FTSE share listings, home builders were moved out of the construction and building materials sector and into the household goods sector. Chief Executive of Wilson Bowden, Ian Robertson, said: “It is difficult to see the relevance of the reclassification. We have far more in common with the construction industry than the household goods sector.”
The Times quoted an unnamed city analyst: “This is utter rubbish. I can’t think of any rational reason why you would move housebuilders to household goods. I take that to be buying a packet of Persil, not buying a house.” (Financial Times, The Times)
George Wimpey trading statement
George Wimpey announced that it achieved 12,100 UK completions in 2005, down 1% compared 2004, in a trading update ahead of the announcement of preliminary results for the twelve months to 31 December 2005. Average selling prices were reported down 4%, due to changes in mix as well as increased sales incentives.
The statement commented: “In the UK it remains too early to predict the market for 2006. However, like others, we were encouraged by some firming of the market, especially in the south, during the late autumn. The actions we have taken to strengthen our order book ensure we are better placed to respond to the market than we were a year ago.”
(miranda.hemscott.com)
Redrow trading update
Redrow announced that it delivered 2,077 completions in the six months to 31 December, slightly lower than 2,111 completions in the same period a year ago, in a trading update ahead of publication of its interim results for the six month period, to be published on 7 March. Profitability is expected to be below that in the corresponding period a year earlier, reflecting the impact of product and geographical mix. Profits are expected to be weighted towards the second six month period of this financial year, i.e. January to June.
The Group commented: “The first six months of the financial year have remained challenging and competitive, with incentives continuing to be widely promoted in the industry. Whilst overall transaction levels in the total housing market for 2005 are now anticipated to be at their lowest level for thirty years, both recent housing market statistics and the Group’s own lead indicators including visitor and website traffic have been encouraging. Consumer confidence will be important in determining the strength of the housing market in the Spring of 2006, particularly with regard to the level of transactions, and will influence the full year outturn.”
(www.redrow.co.uk)
Galliford Try report a rise in completions
In its trading update, Galliford Try presented a positive outlook for the market and a rise in completions, which increased to 484 in the second half of 2005 (up 25% on the same period in 2004), although average selling prices fell 11% due to “further concentration on the mainstream market”.
The statement also commented: “Sales rates during the period have been satisfactory. Visitor levels are encouraging based on the limited sales incentives and marketing support that continue to be required. We are operating off 20% more sites than a year ago. Our successful business model, together with our broad geographic spread across the southern half of the country, means that subject to market conditions remaining unchanged in the New Year, we are well placed to achieve our targets for the full year to 30 June 2006.”
(www.tryhomes.co.uk)
Housing Market
House prices rise in December
House prices rose by a seasonally adjusted 0.5% in December, according to Nationwide, to stand 3.0% higher than a year ago, a rise in the annual rate of house price inflation from 2.4% in November. Nationwide continue to expect prices to rise by 0% to 3% in 2006, while Group Economist Fionnuala Earley noted that: “2005 was also the first year this century that growth in the equity market has outperformed the housing market. The FTSE 100 grew by 16%in 2005, compared to housing market growth of 3%. But the FTSE still remains 10% below its 1999 level, whereas house prices are more than twice as high as than at the end of 1999.”
(www.nationwide.co.uk)
Mortgage approvals continue to rise
The number of loans approved for house purchase in November rose by over 50% compared to the same month a year ago, according to data released by the Bank of England. A seasonally adjusted 115,000 mortgages were approved in November 2005, a figure that has steadily edged up from a low of 76,000 in November 2004. While approvals are still a little below a peak of around 130,000 per month at the end of 2003, they are at similar levels to that seen in 2002 and higher than in the years preceding this.
(www.bankofengland.co.uk)
Other News
Mortgage equity withdrawal falls
Mortgage equity withdrawal (MEW), which is “intended to measure that part of secured borrowing that is not invested in the housing market”, was reported down in the third quarter of 2005 by the Bank of England. MEW totalled £8.3 bn over the quarter, which equates to 3.9% of disposable income. MEW had risen from 3.2% of disposable income in the first quarter of 2005 to 4.8% in the second quarter, but it has fallen considerably from as high as 9.0% of disposable income in the fourth quarter of 2003.
(www.bankofengland.co.uk)
Gateway could fail to attract buyers says IPPR
The Thames Gateway may fail to attract people if the government does not “invest in infrastructure and community facilities”, says a study by the Institute for Public Policy Research (IPPR). The study revealed that those on higher incomes would only be attracted to locations with very good transport links or a strong cultural heritage and would not want to live in mixed tenure developments. The report also found that people of all incomes were concerned with the quality of the developments in the Gateway, with thin walls and floors topping the list of complaints followed by small rooms and poor quality finishing.
Jim Bennett, senior research fellow at the IPPR, said: “People are put off by the idea of standardised developments, without access to local community services or communal green space. Attracting a social mix of people into the Gateway remains a big challenge because of these negative perceptions.” The report was compiled after the IPPR conducted a series of interviews and focus groups with people about to move and local residents.
(www.ippr.org.uk)
In response, a spokesperson for the Office of the Deputy Prime Minister said: "1.6 million people live in the Thames Gateway area, this project has talked to 56 people. We agree that we need high quality design for the new homes that are needed alongside new jobs in the Thames Gateway." He added: "The Gateway is a great location with good access to Europe and London. We are committed to working with our partners to realise its potential for existing and future residents and businesses."
(www.odpm.gov.uk)
Equity release schemes criticised
Equity release schemes “can be expensive, inflexible and leave you with little or no equity in your home”, according to Which?, the consumer group. Analysis of 39 equity release products from 24 different providers found that borrowing £80,000 on a £350,000 property could cost up to £343,350 after 25 years. Which? believe that alternatives, such as downsizing or borrowing from family, should be considered first by older people, before equity release schemes. Some schemes were also described as being advertised in an irresponsible manner.
Editor of Which?, Malcolm Coles said: "If you're over 60 and worried your pension won't be enough to live on, an equity release scheme might seem like a good idea. However, think long and hard before committing to one of these high-risk products. Lenders want to sell you a lifestyle dream, but the reality can be very different. These schemes could turn into a financial nightmare which can stay with you the rest of your life."
(www.which.net)
New rules on Reits could stifle takeover activity
Treasury plans to restrict shareholdings in proposed real estate investment trusts (Reits) to less than 10% for any one group could stifle takeover activity and restrict the operation of capital markets, according to a leading property executive. Francis Salway, chief executive of Land Securities, said: “The rules would affect corporate activity and stakebuilding. How would you get efficient M&A activity, which is critical to efficient capital markets?”
Liz Peace, chief executive of the British Property Federation, said: “We do need the property plcs to be behind Reits if we want them to start with a bang rather than a whimper.” (The Times)
Paul Samter
Senior Analyst - Economic and Policy Affairs
Home Builders Federation
For daily news updates for the housebuilding industry from Housebuilder magazine go to www.house-builder.co.uk