Bovis Homes expects building costs to jump 5%

Aaron Morby 8 years ago
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Bovis Homes has factored in a 3%-5% rise in house building costs this year as subcontractors battle to restore eroded margins.

The southern house builder said that with activity and sales prices rising, the cost of building houses is also rising as material suppliers enjoy increased demand and subcontractors jump at the opportunity to raise rates.

But the firm said that market rises in sales prices are expected to at least cover these cost increases and would not hamper its expansion plans to deliver up to 3,600 completions this year.

Bovis Homes said it planned to add two more regional bases to its six present operational centres, raising business capacity to 5,000 homes each year.

David Ritchie, the chief executive of Bovis Homes, said: “The housing market is recovering with higher activity levels and improving house prices expected to more than compensate for supply chain cost increases.

“The group aims to deliver between 3,400 and 3,600 legal completions in 2014 and a stronger forward order book for 2015.”

Announcing results for 2013, which saw pre-tax profits soar 48% to £79m on sales up nearly a third to £556m, he said completions rose 19% to 2,813 homes.

Bovis Homes saw a 14% increase in average sales price to £195,100, mainly due to a mix of larger homes and a greater proportion of higher value southern sites.

The firm said it has been active in the land market, adding 3,737 plots on 27 sites to the consented land bank during the year.

In 2014 alone, 2,300 plots on nine sites have been added to the consented land bank.

This includes a major development of 1,658 consented plots at Sherford in Devon, where the land cost of the site was very low, due to the high level of infrastructure spend, which will be phased over the life of the site.

As a result, the peak funding on this long-term major project is expected to be between 1% and 2% of the group’s net assets.

Richie said that Sherford would be an anchor site within the South West region over many years, delivering a strong margin and return on capital employed.

Planning was also approved on three major strategic projects at Witney, Winnersh and Bishops Stortford, which will deliver over 1,200 plots to consented land in the future.

He added that Bovis was also on course to start up its first two private rented sector schemes under the Government’s Build to Rent scheme.

The two deals will involved building a total of 500 homes, of which half would legally complete this year.

Ritchie added: “With the current strong sales position and assuming current market conditions continue, the group is confident of its ability to deliver strong increases in volume, revenue and profit in 2014 with the aim of achieving a return on capital employed for the year of at least 14%.”

 

 

 

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