Barratt Makes Windfall Profits, But Real Estate Market May Run Out

Underlying pre-tax profits hit a record high of £1.05bn for the year to end June, up 14.7% year on year, on revenue up 9 .5% to £5.3bn.

But in a sign that demand from home buyers could weaken due to rising interest rates and cost of living pressures, the group revealed that net weekly private bookings by site fell to 0 .6 since the end of the year – against 0.82 in the year to June and below the level of 0.7 seen before the pandemic.

He added that he expects house price growth to slow in the coming months “while construction cost inflation will continue between 9% and 10%”, which could put a brake on growth in profit margins.

Barratt told investors: “Looking ahead, we recognize that significant macroeconomic uncertainties remain, including around inflation, energy costs and interest rates, and their impacts on growth. economy, employment, consumer confidence and spending in the UK.

“International incidents, including the ongoing conflict in Ukraine, could also disrupt global supply chains and further affect confidence in the country.

“The Board will continue to monitor and react to changes in the market and broader economy, but believes that our operating performance, forward order book and very strong financial position provide us with both the resilience and flexibility to react to changes in the operating environment in 2022-23 and as the market evolves thereafter.

Mark Crouch, analyst at social investment network eToro, said: “Continued strong demand is benefiting homebuilders such as Barratt Developments. However, at best there are signs of a slowdown in the UK property market and, at worst, a potentially painful retraction.

Barratt Developments ranks as the UK’s largest homebuilder with a range of projects across Scotland.

“A combination of higher interest rates, falling real incomes, runaway inflation and a gloomy economic outlook should hit demand as we enter the end of the year. We are starting to see this with the slowdown in house price growth.

Barratt launched a £200m share buyback program following its full-year performance, with the first tranche of £50m due to be completed by the end of 2022.

On a reported basis, its pre-tax profits fell 20.9% to £642.3m, largely due to a £408.2m hit from a rising bill to meet the fire safety issues on high rise buildings following the Grenfell Tower tragedy.

The group said that despite greater economic pressures, it still expects home completions to be between 18,400 and 18,800 in 2022-23, down from 17,908 in the year to June.

It added that its forward sales remained “strong”, with an order book of 14,058 homes or £3.81bn, up from £3.84bn a year earlier.

Richard Hunter, head of markets at investment platform Interactive Investor, said: “As strong as Barratt’s financial foundations are, the sector is suffering from some slump on a host of issues. Rising interest rates could have an impact on consumer confidence and there are also signs of a market slowdown in terms of house prices.

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The average house price in Scotland has risen by more than 20% since the Covid pandemic