House price forecasts too optimistic, Prowting warns

PROWTING, the south of England housebuilder, bounced back into the black in the year to February but warned that house price inflation is likely to be more subdued than many in the industry hope.

Terry Roydon, chief executive, added that the cost of labour and building materials would rise by 5 per cent this year. He expected house prices to rise by the 2 or 3 per cent needed to cover the increase but said forecasts of bigger rises, which had underpinned recent land-buying programmes, were too optimistic.

'Tomorrow's write-offs are being created today,' he said. 'After the last recession it took six or seven years before optimism returned. This time it has been more like six months.'

As a result, Prowting only planned to buy enough land to replace forecast sales of 1,100 houses this year. Following the acquisition last year of Galliford, a rival builder, the company has a landbank of 6,000 plots.

The Galliford acquisition, in for six months, contributed 284 of last year's 644 house sales, up from 290 in 1993. The average selling price of pounds 88,000 was unchanged.

Mr Roydon said the Galliford acquisition, part-funded last September by a one-for-five share placing, had reduced the length of the landbank from 17 years to only five years at current rates of building.

The average price of land at the year-end was pounds 11,400 per plot, slightly higher than the previous year but a much lower percentage of the average selling price than most of Prowting's rivals.

Sales were boosted by the success of Galliford's policy of offering to take potential buyers' houses on a part-exchange basis. Half of this year's sales are expected to use the scheme and a small profit is expected from re-selling the houses.

Higher volumes also reduced overheads per sale from pounds 11,000 to pounds 7,000. After sharply lower interest payments, pre-tax profits were pounds 4.1m compared with last year's pounds 4.9m loss. Earnings per share were 3.5p (7.9p loss) and the dividend was maintained at 3.4p.