The falling price of credit has in recent years increased consumers’ purchasing overinvestment, with a large power, helping to push up the price of both resale and new homes. Easy access to financing has also led to number of speculators entering the housing market. Even before the financial crisis culminated in the collapse of Lehman Brothers, the sale of new houses had come to a virtual standstill in both Norway and Sweden. Far more homes, and in particular flats, were being built than the market could absorb.

In the autumn of 2008, the banks changed their attitude to one of completely irrational pessimism, leading to the strict rationing of credit. When the banking industry in much of the world stops functioning, the outcome is a crisis. When customers are unable to get loans, they are also unable to buy homes. We had never before experienced a situation like that.

About the housing market

 The term “housing market” does not refer to a homogenous entity. The market can be split into two main segments: tower blocks in towns and detached/semi-detached houses outside town centres. The detached/semi-detached house segment has traditionally been more stable. There are several reasons for this. These homes are less subject to price fluctuations, and are relatively unaffected by speculators and overbuilding. The detached/semi-detached market is also mainly aimed at customers with a real need for housing based on their situation in life: first-time buyers, growing families and second families.

The tower block segment has historically experienced major fluctuations. A large proportion of these new-build units are bought by investors/speculators – not to live in, but to make a profit by selling them on. These conditions allow over-investment in expensive homes.

What we saw in 2008 was that the tower block segment, which had seen overbuilding and very high prices, was hit first and hardest by falling prices. But in the second half of the year, the detached/semi-detached segment was also hit badly. A lack of financing, combined with general concern about the future outlook and the banks’ demand that “you sell before you buy”, meant that home sales came to a juddering halt. With equity “locked into” existing homes that were impossible to sell, potential customers were shut off from the housing market. 

Restructuring our business for lower sales

In the spring of 2008 we noticed signs of falling demand for our products. Over the course of 2006 and 2007 we had expanded our organisation to handle higher sales. We always aim to optimise production capacity in relation to demand, and it therefore became urgent to adjust our capacity and costs in line with lower sales and earnings. Over the second half of the year we implemented a number of measures, and we have now reduced staffing by approximately 35 per cent. The full impact of the reduction in staffing will be seen in the first half of 2009. 

Focusing on core activities

In the first months of 2009 we have seen a recovery in sales in both Norway and Sweden. Significantly lower interest rates and less restrictive credit policies are contributing factors. The resale housing market is also starting to function more normally. More people are coming to viewings now, and overall levels of activity in the market have picked up. On the other hand, we must be prepared for increasing unemployment and anticipated slower economic growth to hold back demand. 2009 will almost certainly be a year of uncertainty and fluctuations in the housing market.

Our core business is building and selling quality homes at affordable prices. Our customer segment is the “man in the street”. This section of the housing market is not driven by speculators. Our customers need a home regardless of the changing economic climate, because demand is led by people’s family situations, general population growth and moving patterns. Historically it has also been true that demand for family houses and the detached/semi-detached segment are much more stable over the long term than demand for the tower block segment.

BWG Homes entered 2009 with a lower cost base, revised loan terms and a stronger financial position as a result of completed share issues. We have a strong focus on operational efficiency and on being conservative in all areas of our organisation. Our homes and projects are tailored to the needs of our market segment. We prioritise profitability and the quality of our housing projects above short-term top-line growth. We are therefore in a good position to meet these challenging times. And we will maintain our long-term goal of achieving profitable growth and adding value for our shareholders.   

Lars Nilsen

CEO