Outlook poor for house prices

House prices are likely to remain flat over the next 12 months, according to Tony Pidgley, chief executive of Berkeley, the south of England housebuilder which shrugged off difficult trading conditions to record a 40 per cent jump in pre-tax prof its.

He said the rise in land prices this year had been illogical and expected companies across the industry to find their margins under pressure as a result.

"The market is very confusing at the moment. Normally a firm London market would send ripples out to the rest of the country but there is no feelgood factor at all" he said.

According to Berkeley, new houses represent better value than at any time in the past 25 years. Nonetheless, the phasing out of mortgage tax relief, higher interest rates, tax increases and worries about job security are forcing buyers to hold back.

Despite his gloomy assessment of the market, Berkeley announced pre-tax profits of £17.8m in the six months to October compared with £12.6m last year. Earnings per share also rose 40 per cent to 15.4p and the interim dividend was raised 11 per cent to 2.1p.

Turnover increased from £103.9m to £128.7m as Berkeley sold more expensive houses. Volumes actually declined slightly from 656 to 641.

Mr Pidgley, who has one of the best track records in the industry, also pointed to rising building costs and the government's unwillingness to encourage recovery in the housing market given its committment to stamping out inflation.

His anecdotal evidence of rising costs coincided with figures from the Royal Institution of Chartered Surveyors, which showed building prices 11 per cent higher than a year ago.

The RICS also said that rising prices did not reflect higher demand, which remained weak. So far in 1994 building costs have risen at twice the rate of inflation.

He described the current market as normal. As well as housebuilding, Berkeley also has a commercial property joint venture with a Saudi Arabian investor. During the first half Berkeley Eastoak kept out of the market although rising yields have tempted itback.