UK and Ireland housebuilders flourishing on high house prices despite inflationary costs

Reacting to H1 results by Ireland’s Glenveagh Properties, the financial analyst Goodbody said the update provided another example of how sustained demand for housing across the country was ‘ensuring’ they could cover rising prices.

Dudley Shanley, equity analyst, said: 'Glenveagh’s solid set of results for H1 demonstrate the continued demand for housing in Ireland, which is ensuring housebuilders have been able to absorb build cost inflation over the past few months.'

‘The increase in the forward orderbook position also demonstrates the strength of the property market, with the Group having full planning permission for 80% of its expected deliveries. Therefore, Glenveagh remains in a strong position to continue to meet its FY22 profit forecasts, thanks to the sustained demand for homes across Ireland.’

Earlier, Glenveagh gave a solid set of financials, with revenues of €200 mln and profit before tax of €13 mln.

Build cost inflation increased to between 8-9% in H1 versus the previous expectation of around 6%. However, despite the higher build cost inflation Glenveagh Properties is confident of delivering solid earnings.

Back in April this year, the company explained how supply chain issues and the geopolitical backdrop continue to impact materials costs, but there were early signs of labour availability improving and this trend was expected to continue.

On Wednesday there was some relief as official data suggested UK inflation fell to 9.9% in August after a drop in petrol prices, but inflation is expected to remain stubbornly high.

Across Europe as well, inflation remains a concern. In Switzerland headline inflation reached 3.5% in August, which is low by European standards but the highest rate the country itself has experienced since 1993, pointed out data firm, Capital Economics.

The Wealth Club, an advisor to high-net-worth individuals and experienced investors, said this was no time to celebrate in the UK.

Nicholas Hyett, investment analyst, said: ‘Critical everyday items like food and home heating continue to get more expensive, sucking disposable cash out of consumer wallets. As well as making everyone's lives more miserable that has repercussions for businesses across the UK's service economy. When times are tough, belts are tightened and people focus on the essentials - restaurant trips, new cars and holidays all start to get delayed, putting businesses under pressure and jobs at risk.’

‘Government plans to cap energy prices will help to some degree, but it may be that more support is needed over the winter if prices accelerate away once again. Concern about the state of the UK economy and pace of government spending is already weighing on the price of sterling, and acting as a key driver of inflation.’

Another UK housebuilder, Redrow, saw full year revenues increase by 10% to pre-Covid levels. But it said high inflation was cooling a buoyant UK housing market, hurt by rising mortgage costs and living expenses.

For expert analysis of inflationary costs endured in both residential and commercial property projects, see this interview with consultant, Hollis.