London’s biggest homebuilder Berkeley Group Holdings plans to put the brakes on buying new land as the business pivots to returning capital to shareholders against a backdrop of a cooling housing market.

The company said it “will now only acquire new land very selectively”, after a period of sustained investment in new projects, according to a statement on Wednesday (Jun 22). Instead, it will prioritise returning cash to investors over and above its existing commitments, it added in the statement.

The UK’s housing market is showing signs of cooling after a period of exceptional price growth driven by the pandemic and accelerated by a sales tax holiday. Soaring inflation and rising interest rates are starting to limit buyers’ ability to service large mortgages, threatening to cool demand.

“It is increasingly difficult to find new land that can accommodate today’s costs of development and generate appropriate returns,” Berkeley Group CEO Rob Perrins said in the statement. “The focus will shift to returning surplus capital, over and above the current annual scheduled payment to shareholders.”

The pivot comes after Berkeley added 4 major new sites in the year through April, adding 6,000 homes to its pipeline. The decision to slow the rate of new deals echoes the company’s call to halt acquisitions in the run up to the financial crisis, a bet that allowed Berkeley to invest heavily when land prices collapsed. 

Berkeley forecast a 9 per cent rise in annual profit for the 2023 fiscal year on Wednesday, helped by persistent demand in an undersupplied UK housing market despite signs of a slowdown in the sector. The FTSE 100 firm said it expects pre-tax earnings of about £600 million (S$1.02 billion) for the year ending Apr 30, 2023 and £625 million for the 2 years thereafter. Cobham-headquartered Berkeley said that it was “very mindful of the ongoing volatility in the operating environment” from a series of significant global and domestic events, including Brexit, Covid-19 and the Ukraine conflict. Surveys on Britain’s housing market have showed signs of a slowdown in recent months as fast-rising inflation and higher rates tightened the financial squeeze for many households. Berkeley, which operates mainly in London, Birmingham and the South of England, said pre-tax profit for the year ended Apr 30 rose 6.4 per cent to £551.5 million. BLOOMBERG, REUTERS

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