Huge losses force Taylor Wimpey into drastic promotional activity

When shareholders approved the £5 billion merger of housebuilders Taylor Woodrow and George Wimpey, they probably didn’t expect that by the end of August 2008, the combined business would be worth less than £500 million…....

That is what has happened to shareholders of the troubled housebuilding group. Taylor Wimpey has just announced a £1.5 billion loss (mainly due to having to write down the value of its land assets) and its underlying profits for the first half of 2008 have fallen from £120 million (2007) to just £4 million. If ever you wanted evidence of the scale of the slump in the UK housing market, this is it.

Taylor Wimpey is having to take drastic action to increase the volume of new houses sold. It is luring housebuyers back into the market by slashing prices and offering a range of incentives including carpets, subsidised fees and help with deposits.

Management describe this as “taking a more realistic approach to pricing in order to shift stock”. The effect of these actions, however, will be to lower the profit margins made by Taylow Wimpey on each new house sold.

Shareholders will be hoping that aggressive discounting will be enough to kick start some kind of a recovery for the business. But the housing market seems sure to remain in trouble for the foreseeable future. In the meantime Taylor Wimpey’s share price on the London Stock Exchange has taken a battering - and there may be worse to come.