Rent freeze alarm
Springfield halts contracts on low cost homes
Housebuilder Springfield Properties has put its affordable housing contracts and expansion into the private rented sector on hold as it awaits clarification on the Scottish Government’s rent freeze policy.
The company reported record revenue and profit figures for the year to the end of May and delivery of more than 1,000 homes in a year for the first time. It said it was on track to deliver further growth next year.
But, post year-end, it had “taken the pragmatic decision to temporarily pause entering into new large, long-term affordable contracts in order to protect its margins.”
Springfield achieved its highest ever affordable housing revenue. However, revenue and margin in were impacted by higher costs, partly because of the need to re-negotiate some deals after sub-contractors went bust.
The company insists the longer-term fundamentals of affordable housing remain strong and the expects to recommence signing contracts “when more normal market conditions resume and following the Scottish Government’s next affordable housing investment benchmark review to reflect inflation, which is expected to occur in November 2022”.
As a result of the action taken in affordable housing, the group said it is “well positioned” for when the market normalises.
The group’s strategy to expand its private rented sector (PRS) activity with Sigma is also currently on hold “due to emergency legislation that is being introduced in Scotland, as announced earlier this month, to protect tenants by freezing rents and imposing a moratorium on evictions until at least 31 March 2023.”
It said: “This is a temporary measure designed to support families facing fuel poverty this winter, and Springfield continues to believe that the delivery of PRS housing offers a viable revenue stream in the longer term. Whilst this does not impact the group’s existing agreement to deliver 75 PRS homes, any decisions on the expansion of this activity will wait until the policy environment is clearer.”
The company’s comments on the rented sector came as Rettie & Co issues a report saying the Scottish Government’s rent freeze announcement will likely dampen investor interest in Scotland, at least in the short-term, and could lead to the postponement of thousands of new units for rent.
Innes Smith, chief executive, commented: “This year we achieved our highest ever annual profit and revenue with strong results across private, affordable and contract housing. I am pleased at how we managed the material and supply chain pressures facing our industry so that, while not immune, we were able to mitigate much of the impact.
“In keeping with our strategy, we significantly expanded our business with the acquisitions of Tulloch Homes and, post period, the Scottish housebuilding business of Mactaggart & Mickel – two high quality housebuilders with land in areas of strategic importance. We also achieved a milestone with the delivery of our first housing for the private rented sector.
“We entered the 2023 financial year delivering against a strong order book in private housing, reflecting sustained demand for the type of homes that we provide and the expansion of our business. We have excellent visibility over full year private revenue forecasts based on homes delivered, missived and reserved.
“While the challenging economic backdrop will impact our affordable and PRS housing activity in the short term as we await decisions from the Scottish Government, we are on track to deliver another year of revenue and profit growth overall.
“Moreover, the fundamentals of the housing market in Scotland remain strong with high demand for homes across all tenures coupled with a national shortage in housing supply. As a result, the Board continues to look to the future with confidence and to delivering sustainable value for all of our stakeholders.”
Pre-tax profit for the year to 31 May came in at £19.7m against £17.9m last time on a 19% rise in revenue to £257.1m (2021: £216.7m).
The company is proposing a final dividend of 4.7p – making a total dividend for the year of 6.20p compared with 5.75p last year.
It enjoyed a record 1,242 completions and revenue growth across the business.
Tulloch Homes, an Inverness-based housebuilder, was acquired for £54.4m (being £77.9m less cash acquired of £23.5m), of which £13m is deferred consideration, to accelerate growth, enhance earnings and strengthen the group’s foothold in an area of high demand.