Barratt Developments' profit drop sends ripples through construction and property sectors
Barratt Developments, the UK's largest housebuilder, has reported a significant decline in pre-tax profits, down by three-quarters for the year ending June 2024. This comes as the company completed just 14,000 homes, a sharp decrease from 17,000 the previous year, with forecasts suggesting even lower figures of 13,000 to 13,500 homes for the upcoming year.
For businesses in the construction and property sectors, this slowdown could be a signal of challenging times ahead. High interest rates are deterring potential buyers, while inflation continues to push up costs, creating a ripple effect across the supply chain.
If housebuilders are scaling back their operations, then construction firms, contractors, and suppliers of building materials may need to brace for a reduction in demand.
Architectural firms and estate agents and mortgage brokers may also need to look at strategies to maintain profitability, if project pipelines thin and fewer new homes enter the market.
The new Labour government’s ambitious plans to build 1.5 million homes over the next five years could counter current estimates if the suggested planning reforms, green belt adjustments, and mandatory housing targets for local authorities are effectively implemented.
While these reforms are being welcomed, analysts are suggesting that a further easing of mortgage rates is needed before activity will pick up significantly.
See: https://www.bbc.co.uk/news/articles/c8rx23jdkd5o
For the first time, government departments have set individual targets for how much they will spend with small and medium-sized businesses (SME). In total, the government plans to spend £7.4 billion a year with SMEs by 2028.
For shareholders of owner-managed companies, dividends are still one of the most tax-efficient ways to take money out of the company. But with these increases coming in, it will be worth taking a fresh look at your extraction strategy.