Bovis on a land buying spree
Published: 31 August, 2011
LONGFIELD: Bovis Homes is buying twice as much land as it is using to build family homes in future years in the belief that demand for new homes will hold up despite the gloomy economic outlook.
The house builder has gone on a £100m spending spree, adding 1,571 plots on nine new sites in the first half of the year, and agreed terms to acquire a further 2,500 plots. This means it has 14,470 plots with planning consent. The board is so confident it has reinstated its half-year dividend at 1.5p a share, which was scrapped in 2008 when the housing slump forced Bovis into a debt restructuring and thousands of job cuts.
"We're pretty confident," said David Ritchie, the chief executive. "We're buying land assuming current conditions continue. We're not banking in any way on an improvement but similarly, we're not assuming things will get worse."
Bovis is buying land mainly in the south while it is not investing in the east Midlands, Lancashire, Lincolnshire and Yorkshire. A fifth of its homes are apartments, but the typical home built by the company is a three-bedroom terraced or semi-detached house, and "the mix is getting more traditional," said Ritchie.
Bovis built 801 houses in the first half, compared with 803 a year ago. A 3.2% increase in the average sales price to £163,400 and a big reduction in build costs helped rebuild margins, with half-year profits jumping to £8.1m from £3.5m.
Mr Ritchie said that Bovis is now paying its subcontractors 20% less. In 2007 it was not uncommon for a bricklayer in the south of England to be earning £60 000 a year, he said, but that has dropped to £45 000 to £50 000.
He welcomed the government's First Buy scheme but noted that it will only help 10,000 first-time buyers and is merely a short-term measure. The house building industry is locked in talks to find ways of getting the banks lending again at 95% loan-to-value ratios, leaving buyers to fund deposits of only 5%. Ritchie believes the answer could lie in some form of mortgage indemnity insurance, which Bovis offers as part of its "perfect 10" fixed-rate mortgage with Barclays' mortgage arm Woolwich.