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Berkeley Group, the London-based housebuilder, is slowing new developments in response to a cooling housing market and new levies on the industry.
The FTSE 100 group cut its future earnings guidance as it pointed to clear evidence that housing sales were slowing, as buyers weighed the impact of higher mortgage costs.
Sales fell by nearly a quarter in recent weeks, Berkeley said in its results for the six months to the end of October, and the company was seeing “supply matching demand.”
Berkeley reiterated that full-year pre-tax earnings would be around £600mn, but cut its forecast for the next two years to £1.05bn from £1.25bn.
Chief executive Rob Perrins warned that high borrowing costs, low availability of mortgage products and a disorganized planning system were likely to weigh on the market for the foreseeable future.
He predicted a slump in sales rather than a crash. “This is not the crash of 2008/9, which was [caused by] Unemployment and weak banks. This time we got full employment and very strong banks. . . It’s more like the dotcom crisis or the Iraq war: a difficult cycle,” Perrins said.
Berkeley developed a reputation for timing the housing cycle well during the financial crisis and signaled a more conservative approach in the future. The company said it will focus on “cash generation” in the coming years.
“We are not going to build more than we can sell in that period. It is a reflection of the macroeconomic environment and the coming recession,” Perrins said.
Taking a hawkish stance on the sector, Housing Secretary Michael Gove has also warned that growth will slow as a result of new or additional taxes.
Berkeley and other developers are assessing the impact of proposals for a 6 per cent rise in corporation tax, a new residential property developer tax of 4 per cent and an additional building safety levy, which Gove hopes could raise £3bn to fund remedial works on unsafe homes. . .
This week, Gove and Prime Minister Rishi Sunak watered down mandatory government housing targets to appease conservative rebels who criticize him as “Stalinist”. It gives local councils a free hand to block proposals and slow the pace of releasing land for new homes.
Neil Jefferson, managing director of trade group the Home Builders Federation, was highly critical of the move. “If ministers fail to stand up to the anti-trade and anti-development wing of the Conservative Party it is inevitable that housing supply will fall dramatically, costing millions of jobs, reducing GDP and preventing more people from accessing decent housing,” he said.
Perrins also slammed the decision, which he said would make planning less predictable. “It will take two years [implement the change] And two years to undo it: investment slowdown for four years,” he said.
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