Real estate developers are being hit by higher interest rates and weak consumer confidence

Some of Britain’s leading housing developers have posted much weaker financial performances after a challenging 2023 for the UK housing sector.

Crest Nicholson reported that sales fell 28 percent to £657.5 million in the 12 months ending in October, while adjusted pre-tax profits fell 70 percent to £41.4 million.

The FTSE 250 company completed 2,020 homes, 28 percent fewer than the previous year, as the housing market faced significant uncertainty due to rising interest rates pushing up mortgage costs.

According to the report, trading began to show signs of weakness in the summer of 2022, before house sales briefly collapsed due to former Prime Minister Liz Truss’s mini-budget.

Although confidence has recovered, the UK housing market remains hit by successive base rate increases by the Bank of England and concerns about falling property prices.

As of January 19, Crest’s forward sales totaled 1,732 units with a development value of £434.9 million, compared to 2,018 units with a value of £510.8 million in January last year.

The Surrey-based company, which focuses on delivering homes in southern England, admitted its performance was ‘more disappointing than expected’.

It forecasts that trading conditions will improve in the second half of the current financial year, supported by lower mortgage rates, declining inflation and wage growth.

Still, CEO Peter Truscott warned: ‘We expect the housing market to remain challenging in 2024, with high interest rates remaining in place until inflation returns to target levels.

‘In addition, the lack of any government support for first-time buyers, combined with higher borrowing costs, continues to impact affordability.’

Recovery: Crest Nicholson predicts trading conditions will improve in the second half of the financial year, supported by lower mortgage rates, declining inflation and wage growth

Crest further announced that Truscott would step down after five years in charge and be replaced by Martyn Clark, Persimmon’s Chief Commercial Officer.

Meanwhile, Watkin Jones stated it would not recommend a final dividend due to “uncertain market conditions.”

The company revealed that it had fallen to a pre-tax loss of £2.9 million in the year ended September, compared with a profit of £48.8 million in the previous twelve months.

This was largely due to significant building safety remediation costs, with additional impacts from low forward sales activity, one-off restructuring costs and a loss on the sale of three private rental sector assets.

Watkin Jones still saw turnover increase marginally to £413.2 million despite poor market conditions.

CEO Alex Pease said 2023 represented “a period of unprecedented challenge for the business,” given the effects of cost inflation and volatility in real estate financing.

Nevertheless, Watkin Jones noted that supply shortages in both the build-to-rent and student housing sectors are leading to “very high” occupancy rates and rising rents.

The group foresees ‘strong tenant demand and rental growth’ in the medium term, supported by an estimated future turnover of £1.5 billion.

Henry Boot also said it is making progress against its medium-term targets, but still expects challenging times to continue, with 2024 profitability expected to be ‘significantly below current market consensus’ of £37.2 million.

The Sheffield-based company warned that profits would be hit by higher interest rates and gearing ‘towards the top’ of the optimal range of 10 to 20 per cent.

Furthermore, the company expects the recovery in residential sales towards 2025 to be weighed on by delays in the completion of projects and transactions.

After this announcement Henry Boot shares fell 8.8 percent to 191.5p, making them the biggest fallers on the FTSE All-Share Index.

At the same time, Watkin Jones Stock fell 6.1 percent to 49.5p on Tuesday morning Crest Nicholson Shares rose 0.7 percent to 206.2p.

Victoria Scholar, head of investments at Interactive Investor, said: “Housebuilders have been struggling against the backdrop of reduced mortgage affordability, construction cost inflation and financial pressure on households.

‘With the Bank of England expected to begin the shift towards monetary easing in the second or third quarter, investors are looking back to the housebuilding sector as a potential source of opportunity.

“It appears the dynamics that have punished the sector in recent years will change this year, lifting homebuilder stocks off their November lows. However, it could still be a bumpy ride.”