Poor demand for new homes hits Berkeley

Upmarket property developer Berkeley yesterday blamed a near 12% fall in pre-tax profits on a slowdown in demand for new homes.

The London-based group, which has moved away from traditional housebuilding to concentrate on large-scale urban regeneration schemes, said the rise in interest rates over the last 18 months and the resulting lower affordability of housing had dented confidence in the property market.

Planning delays, especially on a site in Woolwich, east London, where proposals to build 3,000 homes had been "called in" by the government, had also hit the company.

Profits dipped 11.7% to £202.9m on turnover of £1.2bn compared with £1.39bn last year.

Founder and managing director Tony Pidgley said that despite more difficult market conditions the company was making strong progress. He dismissed concerns that the fall in profits indicated tougher times ahead.

Amid signs that the London property market has already begun to turn upwards, Mr Pidgley said profits had met expectations and the fundamentals of the housing market remained positive, with continued economic growth in the UK forecast coupled with historically low interest rates and strong employment.

"Berkeley is committed to a strategy of maximising returns to shareholders as opposed to concentrating mainly on the profit and loss account," he said. "This is in part a consequence of our focus on large-scale regeneration schemes, principally in London and the south-east of England."

He said such projects were complex and required a degree of management commitment that created a natural size for the business. "It also gives us the flexibility - essential in our entrepreneurial culture - to maximise short-term opportunities within an unambiguous long-term operating model."

On Thursday Berkeley announced the sale of its northern property arm, Crosby, to Australian property firm Lend Lease for £235.7m. It leaves the firm free to concentrate on high profile projects in the south- east, and will also result in an almost debt free balance sheet.