British property slump puts Lend Lease result into a nosedive

But chief executive Greg Clarke said the Australian residential market would not suffer the same fate, and that the company's local residential business was performing well.

Lend Lease's statutory net profit is expected to fall $265.4million or about 47%, mainly because it is wiping $125 million off the carrying value of its British apartment division. The developer says it will have to start discounting apartments to avoid being left with 800 unsold units.

Net operating profits are expected to be down 10-15% on the $447.1 million expected in 2008.

The disappointment on earnings follows earnings downgrades in July by property companies including Mirvac, GPT and Australand.

The Lend Lease announcement knocked 13.4% or $1.34 off the share price, which closed at $8.66 - its lowest since July 2003, six months after Mr Clarke became chief executive.

It is the third year in a row the company has been forced to write down the value of its British assets, but English-born Mr Clarke said he had seen three property slumps in his career - and believed Britain was still the place to be in the long term.

"We see the UK as strategically very exciting," he said. "Its urban regeneration projects are amongst the largest in the world. The UK has a fundamental imbalance - too many people (with) . too few places to live."

British house prices have fallen by about 8% in the past year and one in seven house owners could soon have a mortgage worth more than their house, according to Standard & Poor's.

ABS figures yesterday showed house prices in Australian capital cities fell 0.3% in the June quarter but were 8.2% higher than in June 2007. US house prices have fallen about 16% in a year. Australian property monitoring agencies are predicting falls of up to 10% in the next year.

However, Mr Clarke said the figures were exaggerated. "Currently the trading position in the Australian communities business is OK," he said. "We assume things might drift down a little . but we're not assuming that we will have the sort of fundamental downturns - the 20-30% reductions in house prices that we've seen in the UK and USA over the past few years."

Finance director Steve McCann said the company was in a position to buy assets at distressed prices, with low gearing and cash of about $800 million.

"What we've done is had a very good look at what our cash-flow situation will be over the next three years on an assumption that there is no recovery in the market," Mr McCann said.

The company will assess whether to increase its stake in retirement village owner Babcock & Brown Communities after its strategic review is published later this month.

Retirement business FKP also remains a potential takeover target. Asset sales would improve the flow of capital but the company "was not under pressure to sell".

Shaw Stockbroking analyst Brent Mitchell said Lend Lease was still a decent long-term prospect. "They have a large pipeline of residential redevelopment opportunities in the UK. Their residential in Australia is also good . and they are more heavily exposed to Victoria, which is holding up better than other states."