Berkeley: average house prices rise by £155,000

Berkeley’s average house price in the latest six-month period soared to £399,000, far higher than the previous figure of £245,000 in the comparable period last year.

Meanwhile the annual rate of house price falls across the country has reached nearly 15%, according to data from the Halifax published yesterday.

Berkeley managing director Tony Pidgley has won a reputation for out-guessing the peaks and troughs of the sector thanks, basically, to his vision of it being highly cyclical.

Two years ago Berkeley (and subsequently its shareholders) pocketed a huge sum by the selling off if its private housebuilding operation. The group was transformed into what it says is an “urban regeneration and residential property developer”

Berkeley’s interim results published today cover the six months to 31 October.

Pidgley said: “In these market conditions, the most challenging for over 30 years, I am pleased to be in a position to report this robust set of results.

“Berkeley has always planned for a cyclical market and, with its strong un-geared balance sheet, is well placed to take advantage of the opportunities that will be presented in the future.

“We are concentrating on generating free cash flow and protecting the balance sheet.  This builds the strength to withstand the more challenging times and to then take advantage of the opportunities that will follow.

“While I am pleased by these results, it is the cash generation of £140m that is the outstanding feature of the performance in the period.”

A summary of Berkeley’s balance sheet shows:

• no debt – this house builder is totally un-geared
• no land write-downs
• net cash of £140m (comparable situation at this time last year: new debt of £5m)
• £810m of cash due on forward sales 

Customers acquiring properties as an investment remain active and represent over 50% of Berkeley's sales in the first half of its financial year.

“This is in our normal range for investors who continue to be influenced by the lack of alternative investments, with doubts over pensions and the stock market and with low interest rates producing unattractive returns on interest-linked investments,” said Pidgley.

During the period, Berkeley sold 970 units, well down on the figure of 1,600 in the comparable period last year.

However the average sale price surged “due to sales mix with a high proportion of sales revenue in the period coming from the delivery of the forward sales taken in previous periods on our Central London sites and a lower proportion of affordable units compared to the same period last year.”

Berkeley had hoped to see an appropriate softening in the land market during the period and consequential opportunities to acquire land for the future. Instead, there has been very little activity as land prices are yet to reflect the true cost of the planning requirements and Section 106 contributions, coupled with the uncertain market conditions.

As a result of this caution, Berkeley has only agreed four new sites.