construction
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Construction work hits 9-month high, housebuilding falls: S&P

Construction work rose at the fastest rate in nine months in February, but this was tempered by a fall in housing activity for the third month running, data from S&P Global/CIPS shows.

UK building projects hit a “robust” 54.6 mark last month, up from 48.4 in January and above the neutral 50.0 threshold for the first time in three months, according to the latest S&P Global/CIPS Construction Purchasing Managers’ Index.

This is highest reading since May, ending two months of decline.

Commercial construction was the best-performing area, hitting a nine-month high, at 55.3, with civil engineering activity also returning to “modest” growth in February, at 52.3.

However, firms noted a fall in residential work for the third month in a row, which came in at 47.4, although companies said, “the speed of the downturn has eased since January”.

Housebuilding businesses said subdued market conditions were due to high interest rates, which caused cutbacks to new housebuilding projects in anticipation of weaker demand.

Across the sector, total new work picked up in February, the report says, leading to an improvement in order books for the first time since November.

It adds that overall business expectations for the year ahead improved further from the 31-month low recorded in December. Around 46% of the survey panel anticipate a rise in construction activity over the coming 12 months, while only 13% predict a decline.

The survey also pointed to the least widespread supplier delays since January 2020 and the slowest round of purchase price increases since November 2020.

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S&P Global Market Intelligence economics director Tim Moore says: “Business activity in the UK construction sector returned to growth during February as a rebound in commercial work and civil engineering output helped to compensate for housing market weakness.”

MHA head of construction and real estate Brendan Sharkey adds: “Today’s PMI reveals that February was a very strong month for UK construction.

“However, in reality, the picture is very mixed. Some construction firms are coping well and some aren’t. At this time of year for many regional builders, a lot rides on local authorities.

“Some are pushing lots of work through before they close their 2022/23 books in March. This is boosting activity but the overall picture is a bit gloomy when looking forward.

He points out: “The London market feels like it is heading for a slowdown and all the big house builders forecast contraction over the next year.

“One or two well-established construction firms have already declared themselves insolvent. It looks like we’re straining to avoid a recession with new orders declining and the prospect of more interest rate rises.”

Beard finance director Fraser Johns adds: “After a two-month period of decline, it’s certainly encouraging to see a healthy rise in activity across the construction sector in February. Supply chain pressures softening and recession fears easing have been key drivers in boosting activity, new order levels and overall confidence.

“Last year, material costs in particular were much larger than expected, leading to a significant squeeze on live projects. It was one of many reasons why those without a strong balance sheet had nowhere to hide in 2022.

“So far this year though, increases – while still present, have started to come down and are closer to expectations, providing less volatility than in the previous 12 months.

Johns says: “One area that is expanding is more specialised infrastructure projects in the likes of healthcare, education and local authority for both local and central government. This has certainly been the case at Beard.

“Although the economic outlook is far from rosy, it is less doom and gloom than what we have come to expect. This is helping to shift sentiment and encourage more clients to commit to projects once again.”

“While this is all positive news, we are certainly not out of the woods yet, especially with high energy costs remaining a key factor. Businesses across the construction sector must still remain agile, especially those that rely on housebuilding projects.

“With high interest rates still stifling housing activity, residential housebuilding remained a weak spot, decreasing for a third month running.”

By Roger Baird

Source: Mortgage Strategy

cheshire garden village
Marketing No Comments

Keep calm and carry on: development sector remains robust

Only a little while ago, the Bank of England base rate was at a record low, ultra-cheap mortgages were in abundance and property prices were climbing strongly on the back of soaring demand.

Fast-forward to today and the market looks like a very different place, indeed.

In an article I wrote a few months ago, I warned of an impending slowdown in the UK’s property market. However, the pace at which conditions have changed has taken us all by surprise.

In those few months, the Bank of England has hiked rates to a high of 3.5%, the economy is heading for recession and, according to surveyors, demand for property is falling. That has had a knock-on effect on house prices, which fell on a monthly basis in October for the first time since July 2021, according to Nationwide’s House Price Index. On top of that, some have predicted a sharp fall in house prices next year, as households grapple with rising mortgage rates and soaring inflation.

But while the outlook may seem gloomy, let’s not forget the fundamentals that underpin the housing market in this country.

The UK is property-obsessed and therefore, while transactions may dip in the short-term, history suggests that the market will recover.

It’s also worth remembering that we, as a country, do not build enough houses. Experts often say we need to build 300,000 new homes a year to keep up with household formation, but we haven’t done that since the 1970s. Until that happens, house prices will continue to be supported by the imbalance between supply and demand.

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Another thing to note is that we’ve seen foreign investment in the UK’s property market hold up well, proving that the asset class remains attractive to investors. Softening house prices and a weak pound will actually boost the attractiveness of UK property to foreign investors even further, which might offset lower activity from domestic investors.

If anything, then, I expect the specialist end of the market, such as bridging and development finance, to remain fairly robust, even if activity tails off in the mainstream market. However, that is not to say conditions will remain the same for investors and developers as they had been.

Specialist lenders retain an appetite to lend despite the worsening economic outlook, but it’s clear that developers will have to pay more for finance in the future than they did in the past.

Truth be told, development finance has arguably been artificially cheap for too long, so a correction was due at some point. The rates developers pay have gone up, but with most of the expected increases now priced in, we should see them begin to settle.

Lenders may also want to see proof that developers are controlling costs in a high-inflation environment. That means not overpaying for land and developing good relationships with builders’ merchants to ensure you can lock-in your long-term costs.

However, like I said, I am confident that lenders will not turn off the taps. While they will want to manage the increased risk that comes with a challenging economic environment, they will also want to compete hard for the business that is left.

Although conditions do look challenging, I do believe that the development sector will hold up relatively well in the coming months.

By Guy Murray

Source: Development Finance Today

Marijana No Comments

Homes England gives long-term hope to housing market

Home England has announced today (Apr 14) that it acquired £180m worth of housing sites in the last financial year, with the 19 sites having capacity for 5,000 new homes across the country.

The Government’s housing agency completed several of these major purchases in the lead up to the end of the financial year, which in the context of Covid-19, shows a positive long-term view of housing demand, with a strong pipeline of projects ready to support the recovery of the housebuilding sector.

Homes England is able to attain challenging or stalled sites due to its experience and resources, unlocking development opportunities for much-needed new homes on the market across the country.

Included in the new sites is the 37-hectare Panshanger Aerodrome in Welwyn Garden City, with the capacity for 815 homes. An expected 30% of these will be affordable housing and come with a new primary school, a community centre and self-build plots.

The site’s infrastructure will be delivered by Homes England before marketing to developers in parcels, making the delivery quicker and more efficient.

2.5 hectare of land in Digbeth has been acquired from Birmingham City Council, forming one of the largest development sites in the city centre, with total capacity for 1,000 new homes and 25,000 square metres of employment space.

Other sites include Brislington Meadows in Bristol, Burtree Garden Village in Darlington and land just south of Rugby, Warwickshire from the County Council expected to deliver over 900 homes.

Simon Dudley, interim Homes England Chair, said:

“It is testament to the hard work and dedication of colleagues and our partners that we’ve met such a strong year-end at this challenging and unprecedented time.

“I want to reassure the sector that Homes England is very much open for business and investing in a long-term pipeline of development opportunities to support market recovery.

“The need for new housing will remain a priority, so we will continue to do business with partners across the sector to create opportunities for future development and support the government’s housebuilding objectives.”

Source: PSE