Record home prices continued to offset rising construction costs and boost profits for builders Bellway and Crest Nicholson.
Despite the skyrocketing cost of building materials and concerns over rising mortgage rates and the cost of living crisis hitting demand, the two London-listed companies remained optimistic as they posted sales and earnings in rise.
Bellway said demand for its homes remained strong and bookings were ahead of last year, with its backlog rising 27% to £2.4billion in the four months to June, compared to £1.9 billion in the same period in 2021.
Beneficial: Homebuilders Bellway and Crest Nicholson said higher house prices had offset the higher price they were paying for building materials
The builder expects the average price of its homes to rise by around 4% above £305,000 this year, offsetting rising costs and boosting profit margins.
To meet demand, it expects to build more than 11,100 homes this year – a 10% increase from 10,138 units last year.
“Overall, construction cost inflation has been offset by rising house prices and we expect this trend to continue, with our strong forward selling position supporting our drive to optimize pricing on bookings. future,” the band said today.
Bellway Shares rose 2.7% to £22.67 in Tuesday afternoon trading. However, they have been falling all year and are about half their pre-pandemic level.
Investors in a smaller rival Nicholson Ridge were even happier with its half-year results and shares jumped more than 7% to 273p.
The homebuilder said demand for homes still exceeded supply as it revealed revenue rose 12% to £364.3million in the six months to April.
The average price of a Crest Nicholson home rose 2.8% to £409,000 during the period, while home completions rose 7.8% to 1,096 properties.
The group also recorded an adjusted pre-tax profit of £52m.
However, on a reported basis, it fell to a pre-tax loss of £52.5m due to £105m of one-off costs, driven by the money it will pay to deal with the problems of fire safety in apartment buildings.
Like other builders, Crest Nicholson said he has seen an increase in building materials due to a range of factors, including post-Covid reopening and the war in Ukraine, as well as demand for large infrastructure projects such as the HS2 track.
“Certain materials such as steel have risen in price in direct correlation to rising energy prices,” he said.
“Other materials, such as bricks, have been better insulated where alternatives such as concrete (rather than clay) can be found and used instead.”
It is trying to mitigate rising costs with “strategic partnerships with key suppliers” and although it is also facing rising staffing costs, it said this has moderated in recent months.
The group added: “No one in the construction industry is immune to the current impacts of input cost inflation.
“However, we are managing to offset this with inflation in selling prices in a market where demand is strong and supply levels are relatively low.”
Homebuilders have benefited from rising house prices in recent years, but there are concerns that rising mortgage rates and runaway inflation will affect demand for homes and slow price growth.
However, so far there has been little evidence to suggest a sharp downturn is ahead.
House prices rose by a further £3,000 between March and April to a new high of £286,079, according to the latest figures from Halifax.
Annual growth slowed slightly, but remained in the double digits at 10.8%,
Bellway shares have halved since the start of the pandemic
Russ Mould, chief investment officer at AJ Bell, said homebuilders face some risks but will continue to benefit from a buoyant housing market for now.
He said: “There have been signs in recent housing surveys that the market is starting to cool, but updates from Bellway and Crest Nicholson suggest demand is still robust overall.
“Perhaps more impressively, pricing momentum continues to outpace rising costs and, as a result, margins are increasing. This suggests both companies are doing a good job of providing the kind of homes people are looking for.
“A move towards hybrid working means that those who can afford it are often looking for additional space to accommodate a home office. The supply of new housing remains a long-term problem in the UK and this is helping to support the market .
But he added: “With high labor and raw material costs, companies like Bellway and Crest Nicholson are exposed to the risks associated with a market downturn.
“All they can do is lay a solid foundation, including buying land at lower cost to improve the economics of future developments, so they can weather any coming storm and emerge as a safe on the other side.”
“Notably, Crest Nicholson and Bellway operate with significant cash buffers.
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