The number of homes Barratt Developments built in London in the second half of 2016 plummeted almost 60% from 842 during the same period in 2015 to just 367, the company has admitted.
Despite a strong regional performance, the UK’s largest housebuilder built 5.5% fewer homes overall during the period than it did the previous year, it revealed in its half-year results.
Speaking to Property Week after the results, chief executive David Thomas explains what is behind the slowdown and why Barratt is turning to investors in the private rented sector (PRS) to combat flagging sales at the top end of the London market.
Sites we bought three to four years ago are now coming to an end, particularly in zone 1
Firstly, he is keen to stress that the problems in London are not capital-wide. The main issue is that Barratt has not been buying new sites in the city centre, he says.
“Sites we bought three to four years ago are now coming to an end, particularly in zone 1, and we haven’t bought any new sites in zones 1 or 2 over the last couple of years,” he says, adding that Barratt is continuing to buy sites in zones 3 to 6.
The lack of deals has not been for want of trying, he adds: “It’s not that we haven’t bid on sites; it’s just that we haven’t been able to secure them on the right financial terms.
“Over the last two or three years, you have seen a lot of money come over from overseas, whether private equity or sovereign wealth funds, and that has unquestionably driven land prices in zone 1 and the edge of zone 2.”
The slowdown at the top end of the London market has also affected Barratt. In November, it cut prices for some prime properties by as much as 10%, which the firm says is helping to stimulate demand.
Barratt has also turned to PRS investors with a view to doing bundle deals. It sold 54 units to a “formal PRS operator with a big portfolio” on sites in Aldgate and Fulham last month, he says, and plans to do more such deals in the future to combat slowing sales.
“If we have a building, and it’s 100 units and 30% affordable, we have 70 units to sell. Two years ago, we would’ve comfortably dealt with those sales within 12 months. Now, the rates of sales are slower so it may well be that of 70 units, we have 50 units we sell privately and 20 units we’ll sell in a bulk deal.”
Barratt can sell the homes for roughly £1m a unit on average, he says. Combining Fulham, Aldgate and a deal for 39 apartments in August, that means it has generated roughly £100m in revenue in the last year.
Thomas won’t be drawn on how many units he expects to sell in bundles, but he agrees the figure could reach £300m fairly quickly. “We don’t see it as being a negative. Our job is to respond to the given market conditions. It’s about de-risking the site,” he says. “It’s something you’ll see more of in the market.”