Housebuilders’ margins drop to 12.6% amid market turmoil

Housebuilders’ profits have been hit by the double whammy of house price cuts and a fall in land values, the latest data from BDO Stoy Hayward has revealed.

In the three months to 31 December 2007, the average sector margin fell to 12.6%, from 16.2% in the same period of 2006.

Richard Kelly, head of construction at BDO, said: “You’re getting pressure on the top line because housebuilders are cutting prices to sell units, but they’re also being hammered because they’re sitting on land bought at the top of the market.”

He said he expected the sector average to fall as low as 10% over the next three-to-six months as the credit crunch tightened.

The worst performer, Taylor Wimpey, was hit by a £283m land writedown in North America and returned a margin of –6%. Kelly was unimpressed by claims that its UK business had a 12% margin, saying this was “still much lower than its peers”.

Redrow was another poor performer, with a margin down from 16.5% to 12.9%. One observer reiterated claims that this meant the company was “ripe for takeover” later in the year.

Other firms listed were Barratt (16.2%), Bellway (18.1%), Bovis (22.3%), Persimmon (22.6%) and McCarthy & Stone (23.2%).

Kelly said companies were still active in the land market but vendors needed to lower their valuations. “There are still lots of people willing to sell, but with last June’s prices in their heads. Housebuilders need to keep selling to cover interest payments.”