Housebuilders Recover Margins as Overbought Landbanks are Cleared

Telegraph Reports on the recovery in profits of major housebuilders.

falling land values saw builders forced to write down the value of their vast land banks dramatically.

Balance sheets were decimated, with several private players taken out. In response, the sector embarked on heavy cost-cutting, through lay-offs and painful austerity drives.

But today the industry’s greatest weakness – its exposure to land values – is as a strength, as it feels the benefit of building on land bought after the housing downturn, which meant it was cheaper.

It is the biggest factor [in the recovery],” says Mark Clare, chief executive at Barratt. “We are not getting much help from the market. It’s really down to new land coming through.”

In its most recent financial year, more than a third of the homes Barratt sold were built on this newer land. This year, it should be over half. That translates into bigger profits.

The new plots also tend to be better placed than the older stock, both in location and make-up. The industry is focusing on the market in the South and isolated hot-spots, moving out of slower northern and Midland areas where prices are more depressed.

“Replacing a written down site in the North with no margins with a site in the South… by definition, profitability will improve,” says David Ritchie, chief executive at Bovis.

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