Housebuilder Berkeley to ‘batten down the hatches’ amid sector slowdown

London-focused housebuilder Berkeley Group has reported tumbling sales in recent weeks amid a cooling market and a “toxic” mix of challenges facing the industry.

The FTSE 100-listed company said the value of sales in the five weeks after the end of September was 25% lower than the previous five months.

The housebuilder is set to slow investment into new developments as it sounded the alarm over an increasingly challenging environment for the sector.

This includes a complex and slow planning system, higher build costs, increased regulation and corporation tax being 6% higher, alongside a proposed building safety levy designed to raise a further £3 billion from the industry.

The combination of challenges will “inevitably” lead to a reduction in supply of new homes in London and the South East, resulting in fewer land holdings, Berkeley cautioned.

This is despite a systemic under-supply of new homes in the capital, the group said.

Rob Perrins, Berkeley’s chief executive, said: “While Berkeley is ready and able to invest in new opportunities to increase delivery, we are positioning the business to reflect today’s environment until the conditions for growth are present to support responsible, sustainable investment.

“We are experienced at operating in times like these and will focus on generating value from our existing assets with limited new investment, matching supply to demand and cash generation.

“London is the most beautiful and dynamic city in the world but is not currently attracting the necessary investment from private or public sources, including for infrastructure and affordable housing grant, to unlock more brownfield sites and address the systemic under-supply of new homes.”

Mr Perrins added that the company would continue to work with the Government to address barriers facing brownfield regeneration – referring to previously developed land that is no longer in use.

Berkeley told investors that its pre-tax profits dipped by 2% to £285 million in the six months to October 31, compared with £291 million in the same period last year.

Revenues were also down by about £20 million, from £1.22 billion to £1.2 billion, but cash due on forward sales, completing within the next three years, was up to £2.3 billion from £2.2 billion.

This is a resilient performance in the context of current market volatility, and reflects the strength and depth of demand in London, Berkeley told shareholders.

Richard Hunter, head of markets at Interactive Investor, said: “Berkeley is battening down the hatches in view of a tightening economic environment, but remains supported by its exposure to London and the South East.

“Potential problems are sector-wide, however.

“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, have all weighed.

“In turn, should this filter through to lessening demand, any decline in average selling prices would put further pressure on margins, while supply chain constraints and a generally dour outlook on UK economic prospects complete the mix.”