Dealing with debt taken on during the boom years remains the principle issue, and there is already evidence of extreme discounting to ensure the cash flow keeps trickling through. While the latest RICS survey suggests that new buyer enquiries are on the rise, January's round of trading statements is expected to contain writedowns-a-plenty, and confirm that sales have slumped to new lows.
Economists forecast that house prices will fall up to 20 per cent in 2009 due to the recession and rising unemployment, not to mention the . For new build properties, the situation is even worse. Think-tank Capital Economics predicts that the prices of new-build homes will fall by 45 per cent peak-to-trough compared to 35 per cent in the wider market.
"Lending criteria has been particularly tightened for first time buyers and buy-to-let investors, and it is these two groups who have the strongest preference for new-build properties," reports Seema Shah, property economist at Capital Economics. Ms Shah has heard of mortgage lenders offering a maximum of 50 per cent loan-to-value on new build properties because of concerns about sales incentives not being reflected in valuations.
The builders have responded by going into hibernation, shedding thousands of staff, ceasing to buy land and postponing new development starts. The result is that just 50,000 to 60,000 housing completions are forecast for 2009, well below the 151,000 achieved in 2007.
So when might be the right time to buy back into the sector? Longer-term investors will favour the less indebted housebuilders, who can spend their cash on cheap land plots, rather than servicing debts. Berkeley Group is the only cash-positive builder in the pack, which reflects its premium rating.
Low gearing was considered a positive for Bovis, but recent negotiations with its lenders were disappointing - it will have to spend its cash on repaying loans, rather than buying land. So analysts expect as the year unfolds, and haven't ruled out the possibility that terrible market conditions could cause one or more housebuilder to go to the wall.
Still, the government is clinging on to its target of 240,000 homes a year by 2016. If it cannot rely on the private sector to deliver affordable housing, the Treasury could abolish tax restrictions that prevent institutional pension funds from investing in residential development - a move that would rock the market to its foundations.
SUMMARY OF HOUSEBUILDING SECTOR:
