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Housebuilders Using Cheap Land To Boost Profits

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Nice one. :angry:

Scotsman

MILLER Group, the Scottish construction firm, expects profit margins in its loss-making housing business to rise substantially in the coming year as the company benefits from buying up cheap land.

The Edinburgh-based group - which trimmed its year-end losses - began building on more than 900 newly-purchased plots in 2010, up from about 300 the previous year. The company plans to buy "quite a bit more" land in the coming months.

Homes built on these sites are expected to deliver profit margins of between 20 and 25 per cent against roughly 5 per cent for houses built on legacy land bought before the market crash.

"We want to get into new sites as quickly as we can, because our new sites will have much better margins," chief executive Keith Miller said.

"It is hard to be precise, but by the end of next year, about 75 per cent (of the sales mix] will be on new sites, and 25 per cent will be legacy."

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What about the land they bought in the late 90's or before ?! What about their land banks ? And so instead of just dropping the prices so they can actually sell them - because they have cheaper land - they are using it to try to increase profits. No wonder they are lobbying the Government for 'innovative' deals on mortgages. Anything but dropping the prices. Even though they can and keep the same profit margin as before.

It is just one big scam. And it has been going on for years. And everyone has seen it happening. And it is still going on. And many in the public still don't get it.

Beyond me. It really is. Although at least a decent number are eventually waking up.

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Nice one. :angry:

Scotsman

MILLER Group, the Scottish construction firm, expects profit margins in its loss-making housing business to rise substantially in the coming year as the company benefits from buying up cheap land.

The Edinburgh-based group - which trimmed its year-end losses - began building on more than 900 newly-purchased plots in 2010, up from about 300 the previous year. The company plans to buy "quite a bit more" land in the coming months.

Homes built on these sites are expected to deliver profit margins of between 20 and 25 per cent against roughly 5 per cent for houses built on legacy land bought before the market crash.

"We want to get into new sites as quickly as we can, because our new sites will have much better margins," chief executive Keith Miller said.

"It is hard to be precise, but by the end of next year, about 75 per cent (of the sales mix] will be on new sites, and 25 per cent will be legacy."

-----------------------------------------------------------------------------------------------------------------------------------------

What about the land they bought in the late 90's or before ?! What about their land banks ? And so instead of just dropping the prices so they can actually sell them - because they have cheaper land - they are using it to try to increase profits. No wonder they are lobbying the Government for 'innovative' deals on mortgages. Anything but dropping the prices. Even though they can and keep the same profit margin as before.

It is just one big scam. And it has been going on for years. And everyone has seen it happening. And it is still going on. And many in the public still don't get it.

Beyond me. It really is. Although at least a decent number are eventually waking up.

I'm not so sure you are right to be angry about this ccc. Think about it for a minute....

These developers are buying up land cheaply, which leads them to think they can increase their profits. However you have to assume they aren't the only developer doing this. So they will be competing with each other for buyers. Buyers who currently have less borrowing capability than at any time in the last ten years. Buyers who are also in negative equity.

So isn't it logical to assume that the developers envisoned increased profit margins will end up eaten away and they'll just make pretty much the standard margins plus maybe two or three percent?

Of course, I'm making the dangerous assumption that housebuilders such as Milne, Barrat and Wimpey aren't one big cartel who will work together to maintain these high margins. But even if they are, buyers simply don't have the finance to pay over the odds for new homes. The way I see it this will force the builders to cut their margins back to the normal rates.

So the way I see it is that if developers are paying less for land it is a good thing, because it means new build houses will eventually come down in price. I can understand your cynicism though, but lets wait and see what happens.

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OP, Makes no odds, it's the selling price.

They'll hardly be able to turn around and increase the asking price purely on the basis of their internal costs. I think it's a pure accountancy trick, if they don't crystalise losses then everything is A-ok. Sell enough on the cheaper land until the balance sheet can bear a haircut on the expensive plots.

Edited by cheeznbreed

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I'm not so sure you are right to be angry about this ccc. Think about it for a minute....

These developers are buying up land cheaply, which leads them to think they can increase their profits. However you have to assume they aren't the only developer doing this. So they will be competing with each other for buyers. Buyers who currently have less borrowing capability than at any time in the last ten years. Buyers who are also in negative equity.

So isn't it logical to assume that the developers envisoned increased profit margins will end up eaten away and they'll just make pretty much the standard margins plus maybe two or three percent?

Of course, I'm making the dangerous assumption that housebuilders such as Milne, Barrat and Wimpey aren't one big cartel who will work together to maintain these high margins. But even if they are, buyers simply don't have the finance to pay over the odds for new homes. The way I see it this will force the builders to cut their margins back to the normal rates.

So the way I see it is that if developers are paying less for land it is a good thing, because it means new build houses will eventually come down in price. I can understand your cynicism though, but lets wait and see what happens.

OP, Makes no odds, it's the selling price.

They'll hardly be able to turn around and increase the asking price purely on the basis of their internal costs. I think it's a pure accountancy trick, if they don't crystalise losses then everything is A-ok. Sell enough on the cheaper land until the balance sheet can bear a haircut on the expensive plots.

I think the problem is they will continue to badger the Government for 'a helping hand' to ensure people can afford the prices they set on these places. Councils paying their deposits, more pishy shared equity nonsense etc...

In the long term it doesnt matter. Prices will eventually revert to what people can actually afford. However I think stuff like this is just dragging it out longer and longer.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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