Berkeley Group expected to post fall in profits as demand for property slows

The London-based housebuilder, Berkeley Group, is projected to report a near 10% fall in its pre-tax profits

The London-based housebuilder, Berkeley Group, is projected to report a near 10% fall in its pre-tax profits due to the ongoing weakened demand for housing when it reveals it's results on Wednesday.

While an expected downturn is evident, industry insiders believe that Berkeley, renowned for constructing premium, upscale homes, may fare better than its competitors. With a forecasted pre-tax profit of approximately £550million - a 9% decrease year-on-year - there seems to be consistency with the firm's prior guidance.

Hargreaves Lansdown analyst, Aarin Chiekrie, commented: "UK housebuilders have been on the back foot in recent years, struggling against a period of inflationary and regulatory challenges. Berkeley hasn't managed to avoid these issues, but it appears to have dealt with them better than most."

Berkeley stands out from its counterparts due to its focus on the London market and luxury home production an average sale price valued at £624,000 at last estimation. Chiekrie attributed high mortgage rates as a factor causing "a relative lack of urgency among some buyers".

Consistently, Berkeley displayed a diminished sales rate by a third year-on-year in its recent update. There are clear indications from current industry measures suggesting that the temporary uplift in buyer enthusiasm has taken a downward turn once again. A Rics survey revealed that during May, a net balance of 8% of property experts saw a decline in homebuyer demand - the lowest since November 2023.

This development arises as the Bank of England is predicted to postpone a planned interest rate cut next week. In the early part of this year, there was speculation that the base rate could be dropped as soon as May which would lower mortgage rates and stimulate the housing market.

However, due to persistent inflation, particularly in the job sector, analysts are predicting that the first rate cut by the central bank might not happen until August at the earliest. Meanwhile, things look worse for some housebuilders.

Crest Nicholson issued a warning that their annual profit will shrink approximately by a third this year owing to ongoing housing market challenges. The company also said it turned down two takeover proposals from rival Bellway last month, one valued at a £650million.

The current trend reflects a time of consolidation for housebuilders triggered by a depressed market situation. Earlier this year, Barratt agreed to Redrow's acquisition; Vistry secured Countryside in 2022.

Commenting on Berkeley, Mr Chiekrie stated: "Net cash levels will also be in focus. Back at the half-year mark, these were comfortably ahead of full-year targets, opening the door to feed cash back to shareholders through increased dividends and share buybacks."