Building firm Redrow to pay price for affordable homes

REDROW, the UK housebuilder with a number of developments in Scotland, said it expected its involvement in building low-cost homes to hit first-half profits.

While the company, which was behind the Optima development at Silverknowes, saw legal completions come in at 2111, compared with 2077 the year previously, average selling prices fell eight per cent as the Flintshire-based firm switched from expensive city apartments to affordable homes promoted by the Government.

The number of "In the City" completions fell from 446 to 152, while there were 105 completions in the new "Debut by Redrow" range - which features houses costing as little as 49,995 each - at locations including Rugby and Chorley.

Last year, over the first-half, Redrow scooped record pre-tax profits of 69.1 million - up 22 per cent on the previous year. Full-year profits were also at a record high, up 14 per cent to 141.1m.

However, in a trading update, chief executive Neil Fitzsimmons said first-half profits this time round would be "below the level" of last year, without detailing the drop. But he said the outlook was more encouraging after signs of a recovery in the market emerged, with profit "more weighted towards the second half".

"We believe first-half profits are set to be over 20 per cent lower than the very tough comparators of the first half 2004/5," JP Morgan Cazenove analysts said in a note.

In March last year, Redrow said it could build the low-cost homes using lightweight steel frames for 10,000 less than the Government's price target of 60,000.

It followed a scheme launched by Deputy Prime Minister John Prescott which challenged developers to build affordable homes to help first-time buyers and key workers get on to the property ladder.

The shift towards affordable housing was cushioned by an increase in sales of Redrow's Signature homes - up from 1665 to 1820 - but the average selling price for the group as a whole was down to 163,000 compared with 176,700 last time.

Redrow also said margins had declined as the market "remained challenging", and downward pressure would remain over the rest of the financial year.

Mr Fitzsimmons said: "House price inflation has not been there over the last 18 months and therefore margins have eased."

He added that widespread use of incentives to encourage people back into the market had also made conditions testing. "Ultimately the housing market depends on consumer confidence," he said.