The punch-drunk housebuilding sector took another body blow this morning, as both Bovis and Redrow announced another huge round of job cuts. Both firms are slashing their headcount by about 40%, which means about 550 jobs will go at Redrow and another 400 at Bovis. Coupled with the mass layoffs at rival firms Taylor Wimpey and Persimmon, that means that over 5,000 jobs in the sector have now disappeared so far this year – and there’s no sign of prospects improving…
Like their bigger brethren, both Bovis and Redrow had a shocker this year. Redrow said sales in the second half of its financial year were less than half the levels of the previous year, while advance sales are also running at almost half the level of last year. ‘The UK housing market continues to be severely affected by the credit squeeze,’ Redrow said today. ‘The market for both new and second hand homes has declined rapidly to transaction levels not experienced for very many years.’
It was a similar story at Bovis: sales were down 32%, with a much higher proportion of social housing projects – which will hammer profit margins. And prospects for the next half look no better: advance sales currently stand at 1,482, down 35% from last year’s figure of 2,282. The housebuilder was no less gloomy than Redrow about the disastrous conditions, calling it ‘the worst market backdrop that the Group has seen for many years’.
One of the big problems is that potential buyers have been finding it impossible to get mortgages, as the credit crunch has made banks increasingly reluctant to lend. However, Redrow reckons confidence is now more of a problem than mortgage availability – potential buyers have been so spooked by what they’re reading in daily email bulletins that they’re steering clear of the market altogether.
As for the housebuilders, an even more pressing problem will be cutting new deals with their banks. Most of them are still in hock for big sums, including money that they owe for land they’ve already bought. Taylor Wimpey’s (unsuccessful) efforts to raise £500m from shareholders recently highlighted just how low the piggy banks are running across the sector; if it doesn’t raise cash fast, it could be in danger of breaching its loan agreements. It’s unlikely to be the only one.
And with the value of their land banks predicted to fall by as much as 100% in the next two years, it’s going to be a very brave investor who goes anywhere near this sector for the foreseeable future...
In today's bulletin:
Sorrell goes hostile after TNS knock-back
Trouble building in the housing sector
We ain't Trading with the Enemy, says Bud
BBC pays price for big rises
'35 Under 35' 2008: The corporates