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House builder shares hit new low

Wednesday, 11 June 2008 12:00 AM

Shares in some of the country's leading house builders slumped dramatically yesterday, lead by Barratt Homes.

The price of the company on the London FTSE exchange fell by nearly 25 per cent - opening at 119.25 pence per share and closing at a new record low of 91.50 pence.

In early April shares had been trading for as much as 443.00 pence, but with the sustained fall in property prices now making a negative impact on the new-build sector Barratt has continued to suffer.

The picture is repeated across the industry.

Persimmon opened at 419.00 pence a share yesterday, but fell to 387.50 pence following a heavy day of trading - a fall of 9.6 per cent.

Similarly, Taylor Wimpey - the largest British-based house builder, created last year by a merger of Taylor Woodrow and George Wimpey - also saw sharp falls of over 14 per cent.

It was, however, Barratt that raised the greatest concern.

A year ago, the shares were worth £11 each, valuing the company at over £4 billion. At prices seen yesterday, Barratt is now worth £400 million.

Laden with debt - partially accrued following the purchase of Wilson Bowden in February last year for £2.2 billion - the company was yesterday forced to deny speculation of a rights issue.

Investors are now concerned the organisation may struggle to meet debt repayments, and may even be forced into a major writedown of assets when annual results are released later this month.
Falls across the industry have been partially caused by a sharp correction in average property values.

Research from the Halifax finds prices were down 3.8 per cent year-on-year during May, which is supported by the 4.4 per cent drop recorded by Nationwide.

It is, however, the collapse in transaction levels which has hit Barratt and other homebuilders, with the Royal Institution of Chartered Surveyors reporting yesterday buyer levels are at their lowest level (Rics) since 1978.

With fewer buyers for their new-build properties for the foreseeable future, these could be very testing times for Barratt and others.

Chris O'Toole

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