Barratt considers setting up luxury homes division

Mar 22 2008 by Graeme King, The Journal

HOUSEBUILDER Barratt is considering opening up a standalone luxury housing division after the success of a development in Hampstead, north London.

The company with deep Newcastle roots is said to be keen on the idea not just because it diversifies its portfolio away from the lower end of the market, but also because selling luxury homes is relatively recession-proof.

Chief executive Mark Clare has made no promises on Barratt’s plans, but he has spoken warmly of the success the company has enjoyed with a development known as Allingham Court on The Bishops Avenue in Hampstead where flats are marketed at between £4m and £11m each.

The scheme was in the news last week when steel company boss Lakshmi Mittal said he was selling his £40m property next door, after failing with attempts to have planning for the site refused.

Mr Clare says the project is a one-off at the moment, but he will look at a separate business unit for luxury homes if he is convinced of its long term value. Speaking to a national property publication, he said: “It’s a completely different market, and it seems to be defying gravity. The buyers don’t need mortgages, so the focus is therefore on being able to deliver a very top-end product.

“We will look very closely at the performance of The Bishops Avenue scheme and see whether that would suggest this is a segment that we should move into.

“If we do this, it would have to be as a standalone entity because it’s so different, but we have a supply chain, construction and selling machines that are more than capable of delivering this type of build.”

Since buying housebuilder Wilson Bowden for £2.2bn last April, Barratt’s share price has sunk from a high of 1289p early last year to as low as 327p in January, and it is now around 365p.

Despite concerns about the health of the housebuilding sector, Barratt’s recent interim results were better than the City expected.

Half year profits rose 10.2% to £194.6m for the period ending December 31, boosted by the Wilson Bowden takeover. Turnover rose from £2.4bn in 2006 to £3bn in 2007, following the acquisition. Andrew Miller, head of Barclays Wealth in Newcastle, believes investors would welcome Barratt adding a new string to its bow.

He said: “The upper end of the housing market has been less affected than the lower end.

“The reason is firstly that in London, the market is much more than just people from London – it’s an international market and, secondly, quite a large number are buying for cash so they have no lending requirements.

“Builders are seeing that property at a certain price point is close to recession proof.

“I would guess if you are a shareholder in Barratt, you would be pleased they are looking across the whole range of the market.”