IN A TRADING UPDATE for the year ending 30 June 2023, housebuilder Barratts Developments plc reported falls in nearly all metrics recorded.

The company experienced “a significant deterioration in demand” during the second quarter and, whilst the position improved during early spring, reservations then slowed again from mid-May.

The strong order book and demand earlier in the year supported growth of 6.9% in home completions, but this was offset by a 12.8% decline in the second half of the year. Overall, total home completions reduced by 3.9% in the financial year, to 17,206. However, the average selling price for a private home increased by 8% to £368,000 with 12,456 private homes sold, down 6.5% on 2022’s total of 13,327.

Reservations

The net private reservation rate was 0.55 per active outlet per week, down 32.1% on the previous year’s 0.81.

First time buyer reservations reduced by 49% in the year, accounting for more than half the decline in total reservation rates. Demand amongst existing homeowners was more resilient. Part exchanges were used on 11% of private reservations in the year up from 4% in 2022.

Forward Sales

Forward sales have “returned to more normal levels this year”, the company says, with 8,995 homes worth £2,223.4m sold, down from 2022’s 13,579 homes worth £3,622.3m.

The average forward sale price was £342.9k for a private home in the company’s order book, an 8.7% drop from last year.

Barratt’s explains the drop in sales price comes from more use of sales incentives, a lower proportion of London sales, more private rental sales, principally to Citra Living; and a greater proportion of larger homes, outside of London. Barratts sold 604 homes to Citra Living in June 2023, the private rental company owned by Lloyds Bank.

Sales Sites

The company operated from an average of 367 sales sites, increased from last year’s 332 although there were fewer new sales outlets opened in the year with 104 sites opened, compared to 118 in 2022. The slower private reservation rate extended the sales activity of several outlets: 389 remained open at the end of the financial year, compared to 352 last year.

David Thomas, Chief Executive, said: “During a year of economic and political uncertainty, we have delivered a strong operational and financial performance, while maintaining our industry-leading quality, customer service and sustainability credentials.

Whilst the trading backdrop has become more challenging in recent months, with many of our customers facing significant cost of living pressures, we have responded decisively – increasing our reservations into the private rental sector, using incentives for customers in a disciplined way, and flexing our build activity, land-buying and operating costs to reflect market conditions.

As a result, we enter the new financial year in a robust financial position with a solid forward order book and we are ready to respond to any further changes in the housing market.”

Next Year

In the next financial year, the company says it expects average active sales outlets to reduce by around 6% as it takes a “step back” from the land market and sites where sales activity was extended by lower reservation rates come to an end. However, Barratts points out that the Group will still be operating with average outlets ahead of those in 2021 and 2022.

Construction Activity

Construction activity during the year was slowed to an average of 322 equivalent homes built per week in the year (FY22: 352). Barratts says it “will continue the disciplined management of our construction activity to ensure we have efficient working capital across our sites and build stages.”

Total build cost inflation is estimated at 9-10% with total build cost inflation expected to abate to around 5% in FY24.

Costs of remediation work were £180m with £115m on fire safety and external wall systems, with 278 buildings within scope. A total of £60m was spent on reinforced concrete frame remediations at Citiscape. More work is required across five buildings, costing around £40m, which Barratts has set aside.

A further c. £5m was spent on ongoing investigations at two other separate developments.

Barratts says it is now identifying a minimum biodiversity net gain of 10% across all new development designs submitted for planning. The company’s sustainability performance has been recognised as it joins the CDP’s Climate Change A List for Leadership, one of only 300 companies worldwide.

Land

Barratts says prevailing land prices have not yet adjusted to the changed market conditions, so although 31 new sites were approved during the year, these were offset by 33 previously approved sites no longer proceeding as they became economically unviable.

The result was a net reduction of 812 plots in the year compared to last year’s net addition of 19,089 plots. The company continues to target an owned and controlled land bank of around 4.5 years in the medium-term.

Barratts reports that at 30 June 2023 the Group held net cash of c. £1,070m reflecting reduced land spend of c. £820m.

Outlook

Despite “significant macro-economic headwinds, most notably persistent inflation and a higher interest rate environment”, the business anticipates total home completions of 13,250 to 14,250 in the next 12 months.

 

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