Interest rate rises cool housing market

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The Independent Online
LAST YEAR's strong growth in the housing and construction sector is unlikely to be repeated in 1998 despite the recent jump in retail sales, according to industry analysts. The booming market had already begun what was being called a long-term slowdown in the face of increasing interest rates and a strong pound, they said.

"That bounce is pretty much over," Michael Foster of Credit Lyonnais Laing said yesterday of the most recent rise. "We are still going to be seeing UK demand rising, but there are problems on the pricing end."

Their comments came as two leading players in the market, Taylor Woodrow and Marley, revealed a strong performance in 1997 but hinted at slower growth this year.

Taylor Woodrow announced a 1997 pre-tax profit of pounds 82.1m, a 23 per cent rise, with housing profits up pounds 8m, property making a gain of pounds 1.7m and construction profits rising pounds 5.2m.

Colin Parsons, the chief executive, expressed subdued enthusiasm for this year's market after the 1997 profit explosion. "Taylor Woodrow is looking at 1998 with some optimism. Market conditions appear generally positive for all our operations."

Taylor Woodrow believes the most recent rise in the UK housing market suggests that customer interest remains high across the country. But it expects the price rises in 1998 will be slow in comparison with 1997.

Taylor Woodrow's housing business, Taywood Homes, reported a 9 per cent rise in UK sales last year but expect that number to reach only 7 per cent in 1998. Profits will also not see last year's heights, and Mr Parsons said that "the major price rises of last year are behind us".

Taywood Homes is turning its housing development focus towards city centres. It is also part of the consortium that will develop the1,400-home Greenwich Millennium Village.

Construction companies have already felt the crunch of the market slowdown. Tony Alexander, the chairman of Marley, the building materials group, said signs of a let-down came at the end of last year.

"New housing activity was stronger in the first half [of 1997], particularly in the South-east, but this improvement tailed off as the year progressed," he said. Marley said the strong pound cut pounds 4m from operating profits.

Throughout the industry, housing and general construction contracts are expected to rise 3 per cent in 1998, according to Mr Foster, but intense rises on par with last year's numbers are not forecast.