Daiwa House to Beat Forecast of Record Profit as Orders Rise

Daiwa House Industry Co., Japan’s biggest homebuilder, will report a higher-than-forecast profit because of strong orders, said Chairman Takeo Higuchi.

Daiwa House in May forecast record net income of 73 billion yen ($738 million) for the year through March 2014. Orders have risen 22 percent in the first five months of the fiscal year that started April from the same period a year earlier, according to the company’s website.

Demand for homes is increasing ahead of the government’s plan to raise the consumption tax next year and amid concerns that interest rates will start to climb as the central bank moves to stem deflation. Housing starts rose for the 11th consecutive month in July, prompting Sekisui House Ltd., Japan’s second-biggest homebuilder by market value, to raise its earnings forecast.

“Our performance will definitely exceed the profit forecast,” Higuchi, 75, said in an interview in Tokyo yesterday, declining to provide a new estimate because the company has not announced its first-half results yet. “We have seen last-minute demand prior to the tax increase, as well as customers who want to place orders while the interest rate is still low.”

Monthly housing starts gained to an annualized 975,000 units in July, completing the longest rising streak since February 1994, land ministry data showed Aug. 30.

Rising Taxes

The government plans to double the sales tax rate to 10 percent from 5 percent by 2015, with the first increase to 8 percent scheduled in April next year, as it tackles the nation’s swelling debt.

Shares of Osaka-based Daiwa House closed 0.2 percent higher at 1,873 yen in Tokyo, bringing this year’s gain to 27 percent. The 96-member Topix Construction Index that includes the homebuilder declined 1.4 percent, trimming this year’s advance to 33 percent.

Annual housing starts at the company may rise to 1 million units in the current business year, Higuchi said. The last time Daiwa House had more than 1 million of housing starts was in the fiscal year ended March 2009 when it reached 1.04 million units, according to the land ministry’s website.

The homebuilder plans to boost net income to 100 billion yen in three years, Higuchi said. The company is set to disclose details in its three-year plan in November, he said.

Sekisui House on Sept. 5 raised its net income forecast by 22 percent to 77 billion yen for the current fiscal year, citing increased demand. Orders gained 16 percent for the first six months from a year earlier, the company said on its website.

Prime Minister Shinzo Abe’s pledge to end 15 years of deflation and the Bank of Japan’s monetary policy easing, along with Tokyo’s winning bid to host the 2020 Olympic Games have helped boost consumer sentiment, said Higuchi.

The benchmark Topix index has advanced 41 percent this year.

“Some very positive news continue to flow,” Higuchi said. “With the winning bid to host the Olympic Games, Abenomics and the rising stock market that are leading to an increase in individual assets, we are in a virtuous cycle.”

Before it's here, it's on the Bloomberg Terminal.