Mass profit warnings as housebuilding nosedives

Three-quarters of companies in the FTSE Home Construction sector have issued profit warnings in the past six months, according to a survey by accountancy giant Ernst & Young.

The swathe of profit warnings is forcing housebuilders into mass redundancies and to halt or drastically limit land-buying.

Barratt has cut the value of its 78,700-plot landbank by £85m and chopped 1,000 jobs, while Persimmon, Bovis and Redrow also made swathes of redundancies to take the total job losses to 5,000 in one week alone.

Andrew Wollaston, a partner Ernst & Young, said: "Market confidence in the sector has fallen to levels not seen before by even the most experienced operators. The spate of redundancies announced by housebuilders [is] clearly aimed at executing a strategy of mothballing their businesses and land banks until the market recovers. How long the recovery will take, is difficult to call. In the last property downturn of 1989, the average value of UK houses fell for six years to 1995 and then recovered to 1989 values in 1997."

Anglo-Irish housebuilder Abbey devalued its landbank by £16.4m and more write-downs could follow.

Barratt is considering a fire sale of some land instead of developing it out and, if land is offloaded quickly, the company will need to write off another £50m from its pre-tax profits.

So far, Persimmon and Bovis have not made any land write-downs, but Redrow is reviewing the situation.

Some analysts suggest deferring write-downs will simply put off problems until later and further undermine confidence among buyers and investors.