UPDATE 1-Grainger squeezes costs as housing market buckles

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LONDON, Aug 12 (Reuters) - Shares in residential property firm Grainger GRI.L rose sharply in early trading on Tuesday after it pledged to step up efforts to cut costs as strains on the UK housing market intensify.

Britain’s largest quoted residential landlord said adverse market conditions affecting the UK housing market would “continue for some time to come” and it had mothballed development and acquisition drives to shore up its balance sheet and reduce its 1.65 billion pounds of group net debt.

News of Grainger's tough defensive tactics were welcomed by investors, who pushed the stock up 4.5 percent to 212 pence by 0848 GMT compared with a 0.5 percent dip in the FTSE 350 Real Estate Index .FTNMX8730. Grainger has bought just 9 million pounds ($17.29 million) of property in the last four months but sales in the ten months to July 31 had soared to 122 million pounds, with a further 62 million pounds of sales exchanged or in solicitors' hands.

“These are unquestionably difficult times for businesses in the residential sector,” Chairman Robin Broadhurst said in the firm’s interim management statement.

“In response to these market conditions, we are putting increased emphasis on cash generation -- by driving through a significant programme of asset sales, by reducing acquisitions and spend on development projects and by cutting overhead costs,” Broadhurst said.

Earlier on Tuesday, the Royal Institution of Chartered Surveyors (RICS) said British house prices fell slightly less than expected in the three months to end-July but the number of completed sales per surveyor had dived to its lowest level in at least 30 years.

Grainger said sales of vacant units from its core property portfolio since March 31 had achieved prices around 2.7 percent below September 2007 book values, in a reflection of how thinner mortgage markets and limp investment demand had shaken the firm’s trading performance.

Further sales due to complete in the next few months are expected to achieve prices around 7 percent lower than September 2007 book values.

For the year to July 2008, Britain’s biggest residential indexes, the Nationwide and Halifax, have shown house price falls of 8.1 percent and 10.9 percent respectively. (See for the global service for real estate professionals from Reuters)