Moray-based housebuilder Springfield Properties has said demand for its private sector homes “remains stable but subdued”.
Despite the sluggish sales, the company is confident of meeting market expectations for the year to May 31 2024.
Further down the line, it expects to benefit from increased demand for new homes in the Highlands to support Inverness and Cromarty Firth Green Freeport.
Chronic housing shortages in other parts of Scotland are seen as another likely driver of future growth.
On track for debt-cutting target
In a trading update this morning Spingfield also revealed it is on track to meet its target of reducing net bank debt to around £55 million by the end of May. As of November 30 2023, the firm had net bank debt totalling £94m, up from £61.8m on May 31 this year.
The Elgin-headquartered group said demand in the private housing market continued to be impacted by high interest rates, mortgage affordability and reduced homebuyer confidence during its half-year to November 30.
This led to lower completions and reservations than in H1 2023.
Selling prices in private housing “remained stable”, the company added.
Springfield said it continues to be encouraged by demand it is seeing in the affordable housing market, having “recommenced engaging with providers” during the half-year.
The company had paused entering long-term fixed price contracts for affordable homes.
It re-entered the market after the Scottish Government raised key investment benchmarks for the sector.
Affordable home projects worth £24m secured since May
Springfield said it had signed affordable housing contracts totalling about £24m since May 31 2023 for delivery in the second half of the year and beyond.
It is in “advanced negotiations” for further contracts it expects to be awarded in H2.
“The group has maintained its approach of only pursuing new affordable housing contracts that have a 12-18 month delivery timeframe, which bring lower pricing risk,” the company added.
Shares in Alternative Investment Market-listed Springfield tumbled on September 20 after it revealed a slump in profits.
It also warned of reduced market demand and announced a freeze on new projects.
Two land sales by Springfield fetch £9.3m
Since then, chief executive Innes Smith and his senior management team have been focused on reducing the firm’s debt “to be in a stronger position for when normalised market demand returns”. A key part of this are land sales to bring in cash without hurting the development pipeline.
Springfield will rake in £9.3m from two deals achieved in its first half and is confident of signing similar agreements “in the near term”.
The company said build cost inflation had eased to around 4%.
Meanwhile, there is “greater availability of materials and labour”.
Springfield added: “The group continues to carefully manage working capital by commencing to build private homes when they are reserved and maintaining tight control over costs.”
An £18m loan secured in September in the face of a “challenging market” is unused.
Springfield said: “While there remains uncertainty in the near-term market, the group is confident of meeting market expectations for the year to May 31 2024.
Second half growth is anticipated “in line with usual seasonality” and with a “significant” contribution from land sales.
The fundamentals of the business and of the housing market in Scotland remain strong.”
The company added: “Looking further ahead, the board is encouraged by the early indications of a return in homebuyer confidence, with inflation reducing and the Bank of England holding interest rates for two consecutive months.
“The interest that the group is receiving in its land bank – and at attractive valuations – reflects the market preparing for an upturn in trading conditions.
“The fundamentals of the business and of the housing market in Scotland remain strong.”
Springfield builds homes in Aberdeen, Aberdeenshire and Moray, as well as on Tayside and in Fife and the central belt.
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