Great news. So then they won't be needing any more taxpayers money to 'revitalise' housebuilding

From Sky News:

Barratt Developments has reported an increase in annual profit to £191.1m - up 41.6% on the same period last year.

Revenues at the housebuilder - known for its new-builds - increased by 14.1%, while the average sales price of its homes rose from £178,300 to £180,000. It also managed to almost halve its net debt to £167.7m.

Government schemes to boost the housing market and a drive to build new homes on higher-margin land - in the South East for example - boosted its results, the company said. An increase in the number of homes it completed - 12,637 this year compared with 11,078 last year - also helped.

Via Paul at HPC

Missing Figures Round

From Bloomberg:

U.K. homebuilders reacted to the financial crisis by switching from apartments to single-family homes. After a year, the shift is paying off in rising profit margins, helping companies overcome a weakening property market. The move away from apartments, combined with a 60 percent drop in land prices, may lift operating profit margins in the industry to about 15 percent in three to four years.

1. The article seems to focus on Barratts, who have just put out a trading update for the year to 30 June 2010, which says that their average selling price ('ASP') for private units has increased from £166,500 to £185,000 over the last year (see section headed 'Revenue') and the average price they pay for a building plot is about £40,000 (see Note 7).

2. It appears to be the case that the cost/value of a building plot has fallen by 60% (from £100,000 to £40,000), and Barratts did indeed have a total write downs of £640.7 million in 2008 and 2009 (see Note 18 to the 2009 accounts). This is only about £13,000 write down per plot, on average, but as stocks are carried at lower of cost and net realisable value, this is not surprising (i.e. if they were bought for £53,000 on average, they were never 'written up' to £100,000 each in the first place).

3. This implies that the cost of building a home, including their profit margin, was £66,500 (£166,500 minus £100,000) in 2009, which seems about right, seeing as it was a mix of houses (about £80,000 each) and flats (about £50,000 each). But is now about £145,000 (£185,000 minus £40,000)? How on earth can the selling value of the bricks and mortar more than double in the space of a year or two, even if we factor in the effect of building more houses and fewer flats?

Answers on a postcard.

Observation of the decade

Right at the end of a fine article titled "House builders' write downs could rise to £13 bn" in ContractJournal.com:

The FT explains that the £13.3bn write-off outlined by Merrill would exceed the £11.3bn of pre-tax profit reported over the past decade... “You have to question whether house builders delivered any added value by building houses as opposed to just reaping profits by sitting on their land banks. Until the whole write-down exercise is over, we won’t know.”

Regular readers of this 'blog will be well aware that land values fell by about three-quarters between 1988 and the mid-1990s. I see no reason to assume that it will be any different this time around, possibly worse as we appear to be starting from a much higher level.

Pile 'em high, sell 'em cheap...

The Scotsman, 30 September, bemoaning the fact that the mortgage market is gradually returning to normal: "The pile 'em high, sell 'em cheap days have gone"

The FT, 19 October 2008: "Barratt also has offered steep reductions on some of its completed homes, particularly ones designed for first-time buyers. These are attracting discounts of up to 43 per cent for buyers who purchase five or more properties at a time."

Barratt's land bank valued at £17,364 per plot

Per Barratt's 2007 interims:
Net debt = £1,738.5 million
Number of building plots = 113,500
Add on market capitalisation of £232.3 million (based on share price as at this morning of 67p), total enterprise value = £1,970.8 million

£1,970.8 million ÷ 113,500 = £17,364.

I had calculated that a typical plot was 'worth' about £100,000* at the end of 2007.

£17,364 is less than one-fifth of the value of six months ago! It's a multiple of less than one-times-average-earnings, so, on the basis that a house is worth bricks'n'mortar plus land, this means the stock market is pricing in a house-price-crash down to mid-1990s price levels (adjusted for earnings).

I think I'll give it a couple of years before I buy again!

* i.e. mid-figure from the graph 4.5 x £457 per week x 52 = £106,938. Or £2,910,000/hectare ÷ 2.47 acres/hectare ÷ 12 homes/acre = £98,178. Or use the rough and ready approach, i.e. average house price £180,000 minus typical rebuild costs £80,000.