NORTH-East housebuilder Bellway last night cautiously predicted a pick-up in the property market despite seeing a two per cent drop in profits.

The Newcastle-based company reported a pre-tax profits fall to £87.8m from £89.7m in a challenging six months.

Chairman Howard Dawe said: "Bellway performed well in these conditions.

"Furthermore, our order book remains extremely strong at circa £715m with over 92 per cent of this year's targets secured."

He said February and March had shown early signs of a pick-up in the housing market, with sales not being as incentive-led as in 2005, and that Bellway remained cautiously optimistic.

Bellway concentrated on strengthening its forward sales position when the property market slowed and this appeared to put it in a good position yesterday with its strong order book.

In the half-year period, Bellway increased the number of homes sold for the 15th consecutive year to 2,958 with an average sales price of £166,600.

Turnover increased by almost three per cent and exceeded £500m for the first time.

Low-cost specialist Bellway said its Scottish, North-East and Thames Gateway divisions thrived in their markets, while a South Midlands division was formed to cater for the Warwickshire area and a major regeneration scheme at North Solihull.

Vinay Bedi, fund manager at the Newcastle offices of investment managers Wise Speke, said: "The great underlying strength of Bellway's business continues to be its consistent ability to replenish its land bank whilst selling more and more houses each year.

"Investors can take great comfort that Bellway places such emphasis on securing its long-term future (the group has five years' supply at current volumes) whilst management's willingness to add to the dividend payouts suggests that the story has a long way to run yet.

"News that the housing market has shown recent signs of improvement bolsters the short term view as well. We remain keen fans of the stock."

In October, Bellway, which builds about two-thirds of its homes on brownfield or former industrial sites, announced record profits for the 12 months to July of £218.2m.

The company said yesterday its strongest areas for sales were in Scotland and east London, and the number of plots it has permission to develop also rose last year.

Bellway has also gained preferred developer status on £1bn regeneration schemes in Leeds and London - which it said would form the backbone of its growth in coming years.

The company is presently selling homes at sites in Hartlepool, Darlington, Stockton, South Shields, Stanley, Sunderland, Redcar, Penshaw, Middlesbrough and Wynyard.

The region's housebuilders, York-based Persimmon and Newcastle-based Barratt and Bellway are among the UK's five biggest-volume housebuilders.

Barratt last week reported record profits of £380m, despite reporting a difficult year