Property company Develop North has seen profits shrink amid the impact of rising interest rates on the housing market.
The Newcastle-based investment company, which is managed by Tier One Capital Ltd, saw pre-tax profits dwindle to just £5,000 in its latest half yearly report, down from £321,000 in the same period of 2022. The marginal profit came despite an increase in revenue from £864,000 to £946,000.
In a report to the London Stock Exchange, Develop North said declines in the housing market had offset some increases in the past two years, and with house prices expected to fall further this year, it said it expected a "bumpy ride" for the remainder of 2023 before a return to growth post 2024.
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During the six months to the end of May the investment company, which now has a portfolio of £23.7m across 17 projects, said it had repriced some of its existing loan book and used higher rates for new projects. Deals during the period included a £1.8m facility for a scheme in Croft, North Yorkshire and a £1.65m facility for housing scheme in Aberdeenshire. Investors were told of a pipeline of £9.2m across four projects at due diligence stage.
John Newlands, chairman of Develop North, said: "The company entered its seventh year of trading during the reporting period, which has included continuing turmoil on the world stage, steep levels of º£½ÇÊÓƵ inflation that governmental measures have thus far struggled to moderate and further increases in interest rates. However, the º£½ÇÊÓƵ economy and the real estate sector in particular appear well placed to benefit as the effects of Covid disappear, energy prices begin to fall, and inflation rates approach their peaks.
"While project finance costs in the main remain high, it is helpful in this regard that there was no shortage of high-quality potential borrowers approaching us for loans and who are prepared to agree terms and interest rates appropriate to the prevailing markets conditions."
Brendan O’Grady, fund manager at Tier One, the investment adviser to Develop North, said: "The quality of the loan portfolio reflects the growing standing of Develop North as a credible alternative lending resource for developers bringing forward important property schemes including new homes and commercial buildings. We’re also pleased to renew the agreement with Shawbrook Bank, which has maintained headroom and liquidity.
"Its renewal for the fifth year demonstrates the support Develop North has from its lender and the growing confidence in future deployment, given the strength of the pipeline during this current financial year."
Develop North made a dividend payment of 2p per share during the half year, meaning net asset value (NAV) per share after dividends were paid, decreased from 81.79p to 79.81 resulting in a flat total NAV return for the period.
