Savills research reveals land values falling four times as fast as house prices - with a further 25% fall to come
UK residential land values have tumbled by one-fifth in the first half of this year - falling at four times the rate of cuts in house prices.
Research from estate agent Savills found that greenfield land in the UK lost 22.5% in value, with brownfield sites losing 19.8%. It predicted that values will fall a further 25% before bottoming out during 2010.
However, prices in the North of England fell even faster, collapsing in value by almost 40% over the same period.
Most of the price falls came in April-June, as the sudden squeeze on mortgage finance began to take hold, putting immediate and severe pressure on house prices. The fall in values has happened at four times the rate of house price reduction, with house prices down only around 5% in the first six months of the year.
The agency said that the falls were so steep because land was traded like a commodity and had risen so sharply in value over recent years.
The falls follow a very steep decline in the volume of housebuilding in the UK, with all listed builders halting purchases of new land in most circumstances. However, the sudden lack of demand may hit builders again as they are forced to write down the value of land on their balance sheets, making their financial position even more precarious.
Low land prices mean it is much less likely for developments to come forward, as landowners have no incentive to sell.
Yolande Barnes, director of research at Savills, said: “This is undeniably a period of falling land values, but there is a shortage of development land in many areas that will remain a fundamental factor driving land values over the longer term.”
The report says: “The ability or otherwise of owners to hold their land banks through this downturn will dictate the depth and pace of falls and, ultimately, the nature of the recovery. Where there is no market other than forced sales, we could see worst-case falls of between 40% and 50%.
“We have seen, and continue to see, significant writedowns in the value of land holdings. Additional, downward pressure is coming as the market anticipates the potential for widespread forced sales at discounts to book value.”
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