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One of Britain's best-known builders has slashed 43 per cent off the price of some new homes as the global financial crisis takes an ever-increasing toll on construction and manufacturing.

Barratt Developments offered the discount to buyers prepared to take five or more flats or houses off its hands in its Yorkshire East division, according to the investment bank Dresdner Kleinwort, which has seen documents sent to property professionals.

The bank also claimed that the six leading property agents in Leeds have between them sold just six new apartments in two months.

Demand for new homes has evaporated after the credit crunch led to a 95 per cent reduction in the value of home loans approved in the UK between July and August.

Alastair Stewart, an analyst with Dresdner Kleinwort, said: "Prices of urban apartments appear to have fallen in many cases by 40 per cent to 50 per cent, volumes have dried up to virtually zero, many developers have gone bust and land in many cases appears to be worthless."

Further evidence of an overall slump in the economy came with the news that many car manufacturers have been forced to bring in three and four day weeks as the motor industry faces its worst crisis in 30 years.

Article continues at Telegraph Online

Labels: Barratt Developments, House market, Housebuilders

Shares in housebuilders rose this morning ahead of the launch of a £1bn government plan to help homeowners. Gordon Brown is expected to unveil a package of measures today to revive the ailing housing market targeted at first-time buyers and vulnerable families.

Shares in Taylor Wimpey jumped 7.6%, up 4.25p at 60.25p in early trading. Barratt was up 5.5%, or 8.5p, at 164.5p while Persimmon climbed 3.9%, or 15p to 400.25p. Bovis Homes advanced 3.4%, or 15.5p, to 466.25p and Wolseley rose 7.5p to 468p, an increase of 1.6%, making it the second-biggest riser on the FTSE 100.

However, the FTSE 100 index was down 20.2 points at 5582.7 points, a fall of 0.36%. Energy groups and miners were among the big fallers. Shares in Tullow Oil fell 3.7%, or 29.5p, to 761.5p, the biggest faller on the FTSE 100, while Cairn Energy dropped 3.5%, or 97p, to £27.13.

Energy shares fell amid talk of profit-taking and as US crude dropped to $108.55 a barrel, its lowest level since mid-April, as worries receded over the impact of hurricane Gustav. "There's been a run up in the shares of late with strong earnings and now people are just cashing in," one trader told Reuters.

For more information visit Guardian Online

Labels: Barratt Developments, Bovis Homes, Gordon Brown, House market, Housebuilders, Persimmon, property development, property prices, property trends, Taylor Wimpey, uk housing, Wolseley

Housebuilders ploughed on with their growth plans at the top of the market and now they're paying the price, finds Mark Leftly.

Once again, Tony Pidgley, the Barnardo's boy turned multimillionaire residential builder, is set to make a killing out of a property downturn. While his peers at Barratt and Taylor Wimpey were getting ready to announce mass redundancies and desperately trying to shore up their balance sheets in the worst housing crisis since the early 1990s, the 60-year-old chief executive of Berkeley announced two weeks ago that the company would spend £350m on cheap land.

Berkeley board members had noted a 25 per cent fall in land prices, so decided to go buying in a move that in effect calls the bottom of the market. Pidgley made the same call in 1991, making him something of a legend in the close-knit world of housebuilding. "By and large the reaction from our shareholders has been first class," says Mr Pidgley, with the biggest of smiles. "The vast majority of them trust the management."

Investors in housebuilding's "big three" – Taylor Wimpey, Barratt Developments and Persimmon – have been far less trusting: their share prices have all lost more than 80 per cent of their value in the past year.

For Mr Pidgley, the game is simple: a decade of uninterrupted growth should have meant that builders had enough cash stashed away for the fall that was bound to occur in such a cyclical industry.

"The City pushes for more and more – turnover growth, profit growth – and it rewards managers if they achieve that," sighs a source. "But the industry is not scaleable; housebuilding needs discipline."

Mark Clare and Peter Redfern, the chief executives of Barratt and Taylor Wimpey respectively, believed that the industry was scaleable – that it was ripe for consolidation. Last year Barratt bought rival Wilson Bowden for £2.2bn, while Taylor Woodrow and Wimpey merged, creating two FTSE 100 forces.

Former directors at Barratt were not convinced by the strategy; the company hadn't made a big acquisition in two decades. Last week their doubts only grew stronger as the company, burdened by £1.7bn of debt, announced 1,000 people would go from its 6,700-strong workforce.

Leslie Kent, a director and analyst at broker FinnCap, says Barratt's decision to buy Wilson Bowden at the top of the market has caused its current plight. "It paid 22 quid for every 11 quid of assets," he points out.

The falling values of those assets and the decline in house sales meant Barratt was in serious danger of breaching its banking covenants. However, a trading statement this week is expected to confirm that Mr Clare has managed to find £400m of fresh debt to help finance repayment of the Wilson Bowden acquisition. He should also announce that he has negotiated a relaxation of Barratt's covenants.

Taylor Wimpey's problems run even deeper. On Monday the board confirmed speculation it had changed the terms of its credit facility – on the condition it raised equity. By Wednesday this capital raising was in chaos when a trading statement reported that negotiations with investors had not led to "a satisfactory transaction". If the situation is not resolved, or house prices don't rise dramatically, Taylor Wimpey will next year find itself in breach of "one or more" of its banking covenants, the statement added.

"The Taylor Wimpey stuff is really scary," says a property banker who is also a veteran of the 1990s crash.

Mr Kent at FinnCap adds that Taylor Wimpey's woes have been exacerbated by the way in which the merger was completed. Under accounting rules, one party had to be viewed as the acquirer and Taylor Woodrow was accorded that honour, with the result that Wimpey's land bank was valued at 2007 prices. As this was the peak of the market, that value have since fallen heavily, hurting the balance sheet.

"Builders that haven't made big acquisitions will find their land revaluations will not be in the same order of magnitude," says Mr Kent, before hinting that this won't necessarily protect their share prices. "The stock market takes no prisoners; all housebuilders are tarred with the same brush."

Article continues at The Independent

Labels: Barratt Developments, Berkeley Group, FinnCap, House market, Housebuilders, property analysis, property prices, Taylor Wimpey, Taylor Woodrow, Tony Pigley, uk housing

There is now a very real chance that Taylor Wimpey, the UK's largest housebuilder by production, could become the first builder to fall victim to the credit crunch.

Created from a merger of Taylor Woodrow and Wimpey just a year ago, the company has stolen the dubious mantel of housebuilder most likely to collapse from Barratt Developments, after it revealed today that it had failed to secure between £400 million and £500 million of new funds from investors.

In theory, Taylor Wimpey has plenty of time to sort out its balance sheet, as it is not in danger of breaching covenants on its £1.7 billion debt until February. In the meantime, short-term cash flow is good and the company has taken tough measures to make sure it stays that way by closing a third of its offices and almost a fifth of its staff.

Full Story at Times Online

Labels: Barratt Developments, Housebuilders, property analysis, property development, Residential property, Taylor Wimpey

Shares in Barratt Developments soared yesterday after reports that the embattled housebuilder had reached a deal with banks to put its finances on a firmer footing.

The company's shares jumped more than 25 per cent after Building magazine reported that the housebuilder had reached an agreement with banks to waive a clause that would have put Barratt in breach of its banking covenants after a land valuation writedown later this year.

Analysts said the reported deal was a encouraging sign that banks would help not to allow housebuilders to break their covenants.

The agreement would make other refinancing options that have been mooted in recent weeks, such as a debt-equity swap or a share issue, much less likely for the sector's most indebted.
It was reported that the waiver would remain until Barratt had repaid the remaining £400million it borrowed to fund the £2.2billion acquisition of Wilson Bowden in February last year, and that it has until the 2011 to do so.

The banks - Royal Bank of Scotland, UBS, HSBC and Lloyds - joined Barratt in saying that they would not comment on the reports but the housebuilder confirmed that talks were continuing.

A Barratt spokesman said: “We continue to have constructive discussions with all of the banks and have nothing to add to our statement from last week.”

However, sources close to the talks played down the reports, saying no such deal had been made yet.

That did not stop the speculation sending shares in Barratt soaring, with other rivals such as Persimmon and Taylor Wimpey also seeing rises close to double digits on the back of the market rumours.

Shares in Barratt closed up 12 per cent, or 9.5p, to 87.75p.

The possible deal was first suggested last week when Mark Clare, the chief executive, said he believed “we could get some sort of waiver” from banks allowing limits to be breached temporarily while the company looked to secure funding from sales or from investors.

Despite the jump in price, Barratt's shares are currently worth a tenth of their value a year ago.

Original story from Times Business

Labels: Barratt Developments, Building Magazine, House market, Housebuilders, HSBC, LLoyds, RBS

Barratt Developments has won the fiercely contested takeover battle for its smaller rival Wilson Bowden with a £2.2bn agreed bid that will create the UK's biggest homebuilder.

The deal, a record for the sector, will mean a windfall of about £700m in cash and shares for Wilson Bowden's chairman and co-founder David Wilson and his family, who together own about 37% of the company.

The auction process was sparked by Mr Wilson's announcement in July that he was reviewing his family's stake. The combined group will have a 12% market share, ahead of Persimmon, and the deal is likely to catapult it into the FTSE 100.

Barratt beat stiff competition from other bidders, including a consortium led by the Scottish billionaire Sir Tom Hunter, which is thought to have been backed by the private equity arm of HBOS. George Wimpey, another builder, also made it to the final stages of the auction.

Barratt will pay 950p in cash and 1.0647 new Barratt shares for each Wilson Bowden share, valuing Wilson Bowden shares at £22.45 each.

Mark Clare, who took over as Barratt's chief executive in October, described the acquisition as "outstanding". He said: "It creates a powerhouse for organic growth going forward. This company will lead the sector."

Evolution Securities analyst Simon Brown said: "This is a coup for Mark Clare ... who has an ambition to drive Barratt to the forefront of UK housing, and with this deal he will succeed."

Barratt has secured irrevocable acceptances from investors holding 37.7% of the shares - Mr Wilson and his family, and Wilson Bowden's directors - and any counter-offer would have to be 10% higher than Barratt's agreed bid. Wilson Bowden shares fell 38p to £22.75 on news of the agreed bid.

The acquisition gives Barratt the David Wilson luxury homes brand, with an average sale price of £203,000, and while Barratt mainly operates in the north and south of England, Wilson Bowden focuses on the Midlands. Barratt has pencilled in synergies of at least £45m from removing overlap between the two businesses and increased purchasing power, while it estimates integrating the two companies will lead to one-off costs of £35m.

Mr Clare said there will "inevitably" be some job losses, but he refused to give details. He praised Wilson Bowden's management but said Barratt had not decided yet who would stay on. The two companies employ a total of 7,500 people.

Original story from Guardian Business.

Labels: Barratt Developments, Geroge Wimpey, Housing market, property prices, uk housing, Wilson Bowden

The stock market value of British housebuilders has plunged by £11.34 billion in just 12 months and is set to fall further after two investment banks warned today the housing market downturn will descend to levels last seen in the early 1990s.

Barratt Developments emerged as the sector's hardest hit company for the second day, after its share slumped by 26 per cent.

Barratt, which is now worth just £300 million but has debts of £1.7 billion after its acquistion of Wilson Bowden last year, is expected to seek emergency funding, possibly through a debt-for-equity swap.

Barratt is now worth less than a tenth of its peak stock market value.
Taylor Wimpey, the UK's third largest builder by volume and the result of the combination of Taylor Woodrow and George Wimpey, also plummeted by 20 per cent.

The losses compounded heavy share price falls yesterday, which wiped £400 million of the market value of the builders. Since last June, the housebuilding sector, then worth £15 billion, has seen its shares plunge by 76 per cent.

Shares in Persimmon, the last remaining housebuilder in the FTSE 100, were also down 9 per cent in early trading to 353p, their lowest point for five years. Persimmon faces ejection from the FTSE later today.

Berkeley Group shares also slid 9 per cent to 666p after Goldman Sachs reduced its recommendation on the UK housebuilder to "sell" from "neutral" and dramatically slashed its target price from 819.9p to 582.3p.

Analysts at Merrill Lynch said: "The early 1990s housing market has increasing relevance as a comparator."

They added: "There is growing evidence of consumers how behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase."

Merrill Lynch downgraded six housebuilders in the sector - cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from "neutral" to "underperform", while Persimmon was moved to "neutral" from "buy", traders said.

There are fears that many housebuilders will be forced to make dramatic writedowns. In the early 1990s, housebuilders wrote down 30 per cent of their value - about £1.3 billion - and many of them needed more than one writedown before their net asset value stabilised.

The sector has been squeezed by banks tightening up on mortgage lending following the credit crunch, hitting the housing market. Many builders have put projects on hold, as willing buyers have dried up, and are laying off staff, while concerns are mounting in the City that many will have to ask shareholders for cash to strengthen their finances.

Housebuilders have also become a target for “short-sellers” who hope to profit from falling share prices. According toresearch from Data Explorers, which monitors short positions in the market, more than 23 per cent of Bovis shares are on loan with “short” investors, followed by 19 per cent for Persimmon and almost 18 per cent for Redrow.

Latest figures from the Royal Institution of Chartered Surveyors, out yesterday, said agents sold an average of just 17.4 properties each during the three months to the end of May, the lowest figure since it began collecting data in 1978.

Merrill Lynch has turned its focus on unemployment levels saying that they will be critical to determining consumer confidence and housing transaction levels, as was the case in the early 1990s recession. The broker suspects that rising unemployment will put additional pressure on housing transaction volumes.

It believes that there will be 10 per cent fewer house sales than last year and that prices will fall by 10 per cent.

"We believe we have gone beyond the tipping point and are now clearly seeing a UK housing market being squeezed on opposing fronts - by a lack both of willing lenders, as well as willing purchasers," the bank wrote.

It suggests that housebuilders are entering a prolonged period of underperformance, with a downturn likely to persist over the next three years.

"We are inclined to believe that if 1988-89 corresponds to 2007-08, than 1990-91 would correspond to 2009-10," Merrill Lynch said.

After the early 1990s recession, house prices did not start to recover until 1994.

Original Story from Times Business Online.

Labels: Barratt Developments, Berkeley Group, House market, Housebuilders, Merill Lynch, Persimmon, property development, RCIS, Redrow, Taylor Wimpey, uk housing, Wilson Bowden

The zero-carbon homes of the future should self-generate the vast majority of the energy they use, but a small amount of near-site or off-site renewable generation will also be allowed, a report says today.

The UK Green Building Council's (GBC) new report, The Definition of Zero Carbon, was thrashed out by a range of stakeholders trying to work out a blueprint for the provision of zero-carbon homes from 2016 mandated by the government.

The GBC's zero-carbon task force was chaired by Mark Clare of Barratt Developments. The company will this week unveil what it claims is the country's first zero-carbon house from a volume housebuilder.

Environmentalists and construction firms have been debating how to define zero carbon, with greens wanting each house to be zero carbon while the housebuilders argue that could be too expensive or impracticable. They want the flexibility to invest in offshore wind farms, for instance, as part of their commitment to renewable energy on their developments.

The GBC report rules that out, but does say some district heating schemes could be allowed or housebuilders could, in certain circumstances, pay into a community energy pot to fund local projects.

GBC chief executive Paul King said: "The government's level of ambition is spot on and should be supported 100%. This is not about dumbing down or abandoning the concept of zero carbon. This is about ensuring the same high level of carbon savings, but allowing developers more flexibility."

He stressed that near-site schemes could be approved but only if there was proof that the project was a genuine addition to the country's renewable-energy provision, and that the energy would be used to power that specific development. Failing that, the developer could pay into a community fund that would ensure equal or greater net carbon savings through new installations.

"The price of paying into the fund should be set at a margin above the cost of community-scale solutions so as to clearly incentivise the installation of on-site or local measures first," says the report.

The report, which will feed into the government's consultation on the definition of zero-carbon homes this year, is likely to be approved as it has been agreed by a range of different interests. Clare said: "The value of this report is reflected in the high degree of consensus reached by many different stakeholders."

WWF, the charity that has been a key driver behind the government's zero-carbon homes initiative, said the 2016 target was "eminently achievable".

Simon McWhirter, WWF's homes campaign manager, said: "WWF is optimistic that the findings from the Task Group will dispel confusion over the definition of zero carbon, investing more developers with the confidence to build to the very highest levels of sustainability. We hope this will help deliver practical zero-carbon homes well ahead of the 2016 deadlines."

Zero-carbon homes will be so well insulated they will require very little heating. They would have appliances consuming minimum electricity to be provided by installations such as solar photovoltaic panels or combined heat and power (CHP) plants. The report's definitions will allow for a single CHP plant to power several adjacent homes.

Original article here.

Labels: Barratt Developments, Green housing, UK GBC, WWF, zero carbon housing