Savills boosted by housing boom

The booming housing market and a return to health for commercial property helped upmarket estate agent Savills to a bumper first half-year to October.

Pre-tax profits soared 64 per cent to pounds 3m (pounds 1.8m), although the chairman, Richard Jewson, warned the imminent general election might reduce activity in all of its markets.

An early beneficiary of the nascent recovery in the residential property market thanks to its relatively high exposure to the better end of the London market, Savills said the exceptional improvement in its first-half figures would probably not be repeated in the second half to next April.

But Mr Jewson said: "With good underlying economic conditions, rising prices in the residential markets and improving occupational and investor demand in the commercial markets, the outlook is positive."

Higher profits were struck from a 30 per cent increase in turnover from pounds 18.5m to pounds 24.1m. After a 57 per cent increase in earnings per share to 4.7p (3.0p), the interim dividend was raised by a third to 1p. Savills shares closed 2p higher at 101.5p.

Savills' profits have risen steadily since it dipped into the red in 1992 at the depth of the UK housing slump.

Its confidence about medium-term trends in the housing market chime with a number of recent industry forecasts of steady and sustained improvements in both prices and transaction volumes.

Rob Thomas, housing analyst at Swiss investment bank UBS, recently predicted a cumulative 46 per cent rise in the average price of a house between 1995 and 2000. He estimates a 10 per cent rise this year and a similar rise in 1998 with London, as usual, leading the recovery.

His confidence is based on calculations that show house prices still well below their long-term trend and due for a period of substantial "catching up". He also believes that a sea change in the outlook for inflation, and so interest rates, will mean a reassessment of the amount housebuyers are prepared to borrow relative to their salaries which could further fuel house price rises.

Last November Savills increased its exposure to the buoyant central London residential market with the acquisition of George Stead. That deal doubled the number of Savills offices in London to 10. The offices have all been rebranded as Savills and take the UK chain to 31 outlets.

In the commercial market, Savills reported strong signs of an upturn with increased leasing activity in areas where the company is strong such as the Thames Valley corridor. Mr Jewson said there had also been outbreaks of rental growth in areas of high demand.

Legal & General recently issued a set of predictions for various asset classes this year, concluding that commercial property would outpace both gilts and equities in 1997.

L&G has pencilled in a total return for property of between 12 and 14 per cent this year compared with an expected return of only 4 per cent from a flat equity market.