House builder Barratt has raised margins by building fewer homes, but selling them for more.
Yesterday it reported that it had been focusing on price, not volume, in 2010.
It built 3,669 homes for the private market, against 4,381 in 2009, but sold each for an average of £191,900 compared with an average of £173,200 the year before.
As a result, it raised operating margins from 0.6% to 5%.
Nevertheless, the volume housebuilder still posted a pre-tax loss of £4.6m, but this was down from last year’s £178.4m.
Barratt said that 2011 had started well, with encouraging sales rates and stable underlying pricing.
“We expect to see operating margin growth in our second half as we continue to optimise prices, reduce costs and open new higher margin sites from recently acquired land,” said Mark Clare, Barratt’s group chief executive.
Among Barratt’s new initiatives is the selling of its showhomes, complete with furniture, to buy-to-let investors in a leaseback arrangement with a guaranteed yield of 7%.
The firm is also known to be exploring the wider private rental market and is expected to announce a private venture partner, whereby new properties will be sold en bloc to investors for the purposes of renting.
Comments
rantnrave: You seem back to usual form. I was a bit concerned last week - a couple of posts from you (or someone posdting as you) seemed too acidic and not in your usual measured and reasonable style.
Okay - builders vs. 'second-hand' house owners. In many ways, a builder is the best kind of seller. The main thing to remember here is that, usually, they are 100% committed to sell their product. As a rule, builders do not build houses to keep them! They HAVE to be sold - and in a poor market, builders will generally give in on price quicker and more than Mr/Mrs Average. In most cases, while they don't want to, they can usually 'afford' to reduce below market value in order to get last-minute sales at critical accounting periods such as their half-year and year-end. Like I said earlier, better to drop a few quid now than to have the property stuffed up you for another few months on finance. It's not like they are living there - the property costs them every day it stands finished and unsold.
Then you come to new starts. Does a builder start a new site, with all the up-front costs associated with roads, sewers, etc for the whole site, in order to pick up a couple of waiting buyers then leave the site deserted and wait for the next boom? Of course not - but there must be light at the end of the tunnel - and the tunnel cannot appear to be too long, or the banks won't finance. Impasse. Can't build:can't sell - can't sell:can't build.
Of course builders have their pet lips well and truly on display because they can't achieve '07 prices - the values were set then; the land bought then; the money pretty much spent then. Now they are getting back less than they promised the banks and the shareholders. NOT TO MENTION build costs which are rising out of control, despite values of the finished product decreasing.
How would you feel?
I don't profess to be anything like an expert on the ins and outs of firms like Barratts. As a simpleton, I get the impression though that the big building firms are sulking that they can't get 2007 prices for their work any more, unwilling to build on anything like the amount of land they own.
As an anecdotal, over half the newbuilds being completed when I moved to this area two and a half years ago are either sitting unfinished or unsold. Will they drop the prices? Fat chance.
This of course undermines the theory that house prices are all about supply and demand. In recent years, 2007 saw the highest amount of new builds completed - which coincides with the time when prices were at their peak. Shouldn't the lack of new builds coming to market now be pushing up prices? Clearly that isn't the case.
An Agent: Yes - and no, maybe. IF Barratt are experiencing the situation that prospective buyers want X' off before they will consider buying, then they will ask 'Y' for the property, including the 'X' factor (no pun intended...)
Barratt are a profit-driven organisation. In order to achieve profits, they either sell masses at lower margins, which then reduces overheads such as funding - OR they need to sell less units at higher values to counteract the additional costings.
Isn't this something that YOU, and OTHER Agents might see as a possible answer to your current low turnover and non-existent profits? A small add-on to your current percentage fee could - just could - make the difference between profit and loss...
Put another way, the difference between staying open or facing closure...
Daft headline - suggests Barratts have put prices up or have achieved higher prices for the same property, they've just sold some more expensive properties, or got high prices for others as they have taken part exchanges
'Among Barratt’s new initiatives is the selling of its showhomes, complete with furniture, to buy-to-let investors in a leaseback arrangement with a guaranteed yield of 7%.'
I'd love to see how they'll guarantee a yield of 7% given the average is currently around 4.8%
Mind, they're probably using the same calculations as Inside Track.