Persimmon slams brakes on new sites

Apr 25 2008 By Graeme King

THE downturn in the housing market was exposed yesterday when one of the country’s largest housebuilders said it would not start work on any new sites until the market improves.

Persimmon Homes, which had sales of £3bn in 2007, made the shock announcement after seeing house sales fall by 24% since the start of the year.

It has around 500 sites operating nationwide, and is marketing 29 across the North East but there are fears that the company, which is believed to have around 1,000 staff in the region, will cut some.

Persimmon’s annual general meeting statement yesterday said it had witnessed an “unprecedented tightening” in the mortgage market over the last three weeks, and the global credit crisis had also affected consumer confidence.

It added: “While we continue to focus on achieving the best possible selling price in every location it is likely that, with the continuation of current conditions, the market will become more challenging. Against the current backdrop we have postponed the commencement of scheduled new sites until the mortgage market improves.”

Other big housebuilders have already axed site staff. The Journal reported in February that Newcastle-based Bellway was looking for 66 job cuts in the region, and the country’s biggest builder Taylor Wimpey was seeking 35 redundancies.

Vinay Bedi, divisional director of Brewin Dolphin stockbrokers in Newcastle, said: “The Persimmon statement today went from horror to even greater horror. They say margins are under pressure, they are having to discount houses, increase marketing costs, and provide greater incentives.

“All that impacts on margins, and couple that with reduced demand and it’s a bad market.

“There will be a lot of big potential developments up here which will not be moved forward as quickly as we had hoped.”

Mr Bedi understood why Persimmon had acted to halt new sites. He said: “Why build houses if you are not selling them? Or at least, why build them, only to sell and not make enough money? Logic says they should be patient while the market recovers.”

Sarah Green, CBI regional director, said: “The issue today is consumers are cutting back and taking a more cautious approach to big ticket spending, including moving house.

“Obviously, that there is more limited choice in the mortgage market is having an impact on consumer spending.

“However, we have to be careful we don’t talk ourselves into recession. We are still very much predicting growth across the economy as a whole. We might be looking at slower growth, but it is still growth.”

A Persimmon spokesman said: “To put this in context, we have 5% more sites open currently than we did a year previously – around 500.

“All we have stopped or suspended is opening new sites. The market is not really there, because of issues on the mortgage side, so we took a view on halting expansion.

“Anyone looking at this market should not be surprised that we are looking at being judicious in where we are putting our capital.”

Persimmon’s share price fell more than 6% yesterday to 608.5p.

TOUGH PERIOD FOR INDUSTRY

THE construction industry has gone through a tough period recently with housebuilders in particular suffering from declining consumer confidence.

Bellway said in February it had recorded a 3.9% drop in profits to £96.9m. Finance director Alistair Leitch said then it was the quickest slowdown he had seen in the housing sector, and that it was far more violent than the housing crisis of the early 1990s.

Bellway’s Newcastle stablemate Barratt has also suffered somewhat, with its share price plunging to a quarter of what it was a year ago despite relatively strong 2007 performance. Rumours that the company needing to raise more cash yesterday saw the price take a new 11% tumble to 293.25p, though sources close to the business denied any such plans.

Such is the confusion and concern over the lending market, it was revealed on Wednesday this week the Bank of England’s rate-setters were split three ways on the latest interest rate decision. Minutes of the Bank’s Monetary Policy Committee meeting showed six of its nine members voted for a quarter-point interest rate cut to 5%.

Two members voted to keep rates unchanged due to inflation pressure, while another called for a 0.5% cut due to fears over a sharper than expected slowdown.