Berkeley Group expected to post falling profit amid housing market woes

14 June 2024, 13:34

A builder in silhouette wearing a hard hat and carrying a pole at a house under construction
Build-to-rent properties. Picture: PA

The London-listed firm will update investors with its full-year results on Wednesday.

Berkeley Group is predicted to post a nearly one-tenth fall in pre-tax profit, as housebuilders continue to struggle with poor demand.

The London-listed firm will update investors with its full-year results on Wednesday.

Despite the expected drop, industry experts expect the housebuilder, which focuses on building premium, more expensive homes, to outperform its struggling competitors.

Analysts expect Berkeley to deliver pre-tax profits of about £550 million, a 9% year-on-year drop, which is in line with prior guidance from the company.

Aarin Chiekrie, analyst at Hargreaves Lansdown, said: “UK housebuilders have been on the back foot in recent years, struggling against a period of inflationary and regulatory challenges.

“Berkeley hasn’t managed to avoid these issues, but it appears to have dealt with them better than most.

“Its London focus and high-end product, with an average sale price of £624,000 at the last count, means it offers something different to other large housebuilders.”

Mr Chiekrie added that high mortgage rates have caused “a relative lack of urgency among some buyers”.

At its last update, Berkeley reported that sales rates were down by one-third year-on-year.

Recent industry measures have indicated that a short period of improved buyer confidence has gone into reverse.

A net balance of 8% of property professionals saw home buyer demand falling rather than rising in May, marking the weakest reading since November 2023, the Royal Institution of Chartered Surveyors (Rics) found.

Graph showing UK interest rates from 2007 to May 2024
(PA Graphics)

It comes as the Bank of England is likely to push back a cut to interest rates next week.

Earlier this year, experts thought the Bank could cut the base rate as early as May, subsequently bringing down mortgage rates and providing a shot in the arm for the housing market.

Now, because of persistently high inflation – particularly in the jobs market – experts say the central bank is unlikely to make its first rate cut until August at the earliest.

Other housebuilders have fared worse.

Crest Nicholson warned its annual profit will fall by about a third this year as housing market challenges persist longer than expected.

And it confirmed that it rejected two takeover offers by rival Bellway last month, including one worth £650 million.

Housebuilders are going through a period of consolidation, driven by the weakened market.

Earlier this year, Barratt agreed to buy Redrow, while Vistry bought Countryside in 2022.

On Berkeley, Mr Chiekrie added: “Net cash levels will also be in focus.

“Back at the half-year mark, these were comfortably ahead of full-year targets, opening the door to feed cash back to shareholders through increased dividends and share buybacks.”

By Press Association