Monday, September 29, 2008

UK land prices fall 33% in one year!

Builders' woes lead to fall in land prices

Residential development land has dropped by a third in value over the past year. Yorkshire and Humberside have been worst hit by the downturn, with land in all categories now worth about half its value from a year ago. The north-west has also been badly affected, with drops of 41 per cent and 36 per cent for brownfield and greenfield sites. The capital has avoided the full impact, with land prices in inner London falling by just 10 per cent. Outer London areas have fared only marginally worse, with a fall of 15 per cent over the past year. Vulture investors are entering the market to snap up bargains among the numerous forced sales of distressed builders. [Maths note: a 33% fall is the opposite of a 50% rise!]

Posted by drewster @ 12:45 PM (2083 views)
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19 thoughts on “UK land prices fall 33% in one year!

  • Free link for those not registered on the FT’s website:
    FT via Google: Builders’ woes lead to fall in land prices

    More interesting points from the article:

    “There are worries that the fall in land values could have a knock-on effect for many regeneration schemes. Agents have suggested, for example, that the resale value of the Olympic park in Stratford could fall well short of the government’s estimate, which could influence the funding equation behind the 2012 games.”

    “Developers … are selling sites to raise cash and bolster their balance sheets, which has dramatically increased the supply of land … depressing values.”

    “Housing associations remain the main prop to the sector. Outside London they represent almost a third of all acquisition activity, compared with just 16 per cent for private sector developers.”

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  • According to bull logic on the housing market, such falls will inevitably lead to a torrent of ‘savvy’ investors ‘snapping up bargains’, thereby causing land prices to start rising again and scuppering the ‘doom-mongers’.
    So is this happening?

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  • you would be an idiot to buy any property now….

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  • Ship – have a look at the mortgage lending figures – it certainly is not happening. Unless there are mystery investment buyers in the property market buying up land for cash who don’t need funding from elsewhere.

    The £ is dying on its feet, and no-one – banks, governments, sovereign wealth funds, russian oligarchs – wants to spend money here and watch it dwindle.

    FTSE down over 3% today.

    What a disastrous administration this country has had.

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  • Meanwhile: Agricultural Land value has increased.

    drewster said : “[Maths note: a 33% fall is the opposite of a 50% rise!]” ———-Very Important Statement……… Every man in the street should understand this.

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  • Although it is quite true that the house price falls we see are as a result in the fall of the value of land (given that the build cost of homes remains relatively constant).

    However I suspect it will be a while before we see these 30% falls mirrored in the asking prices for those odd plots that come up that any of us might be interested in.

    I doesn’t seem that long ago (probably 10-15 years) when eyebrows were raised at someone paying £100,000 for a plot without a house on it. That same plot would now be approximately £300-350k. Silly money IMO.

    So those selling individual plots could see an enourmous % fall against the back drop of 25-30% house price falls.

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  • It was always the land price though, the cost of building a house never changed much up until 2007, just with inflation. A 200K house price is a 60K building and 140K of land (land with planning permission!). All of these drops against (house+land) are really coming out of the land price alone. House building may have got less popular but the price of building is raw materials+labour, no change there.

    Incidentally, the whole idea of buying land is ridiculous because it can never be earned. You cannot generate land from work (I ignore reclaimed marshland and the like).
    There is no real base to any land transaction because the original owner just took control, when you buy land now you are buying control of land which was never earned through work. It can’t be. Hence land tax ideas. Personally, the original control/ownership is so buried in the midst of time now I don’t see any reason to change the idea of land ownership being somehow bolted on to earnings. A useful mechanism for transferring wealth to the old from the young workers.

    Anyway, land price falls will be disproportionately larger because of the above.

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  • japanese uncle says:

    2012 Olympic games!! Will it ever be hald as a matter of fact? Tent cities for the athletes’ accommodation, and pot noodles for a meal.

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  • str 2007 said “However I suspect it will be a while before we see these 30% falls mirrored in the asking prices for those odd plots that come up that any of us might be interested in”

    – the trouble is, as the price of plots drops a lot of the nice ones will get taken off the market. So you have the dilemma: wait until the price is sensible – when there will only be a few manky plots you wouldn’t want in any case available – or go for it when one you like comes up. Difficult!

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  • mark wadsworth says:

    What Stillthinking says.

    As predicted by me and about a million others. Land values are a balancing figure of total property value minus bricks’n’mortar element. So a 15% house price fall = a 30% land price fall. Land values fell by about two-thirds in the 1990s slump. Seeing as we are starting from a much higher base, land price falls of 80% or so would not surprise me.

    Hence the Land Value Tax idea – it keeps land values low and stable and could be reduced to replace a shedload of other taxes (Council Tax etc, you know the list); it evens up the burden between young FTB and NIMBY; and it forces councils to spend money on things that ADD VALUE.

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  • Actually Japanese Uncle the 1948 London Olympics were run very much on those lines and were a great success. I’ve got a spare room I could rent to one of the teams if push comes to shove.

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  • I reckon what we are seeing here is the bigger scale developers writing down their assets to limit their exposure to tax. All it takes is a sympathetic valuer and that’s no problem, lots of them have experience in biased assessments. A bit of exaggeration now can save a load of tax and can always be reversed in coming years with no back-dating.

    I can assure you I know the small plot scene in North Yorkshire better than most and, comparing like with like, there are no steep falls in values – yet. Values are adjusting more or less in line with the rest of the market. I would not expect this part of the market to be influenced by the availability of mortgages because the buyers don’t need mortgages. In parts of North Yorkshire particularly near Harrogate and York some people were paying so much last year that they were building themselves into negative equity. It isn’t just incompetence either, some people choose to pay whatever it costs to live in a specific place, they derive abstract value from their surroundings.

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  • Wow, of course you can’t go wrong with bricks and mortar. Prices in the UK different etc etc.

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  • dohousescrashinthewoods says:

    JU, I’ve been thinking the same thing. If Britain is in the stone-age depths of a depression and cash to fund it can no longer be created out of thin air, at any price, how will it happen?

    If all the Eastern Europeans have gone home to their nice big houses and British labourers have emigrated to Poland to work as plumbers and suffer xenophobic villification, who will build the stadiums?

    Gordon Brown will be left alone on a deserted worksite with nothing but his bright red credit card bill payment demand for company.

    Either that, or it will be built by charities, volunteers, teachers and nurses in a huge patriotic effort to “keep Blighty going”, but having seen members of the general public lately, I don’t think there’s enough altruistic spirit to make it happen. It’s going to take one heck of a leader.

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  • mark wadsworth says:

    Having read the article to the end, I am delighted to see that taxpayer funded and democratically unaccountable Housing Associations are now the biggest buyers of residential land in a falling market!

    It’s reassuring to know that my hard-earned is being used to pay land owners for the value of planning permission that the State granted them for free/low cost in the first place, on behalf of the self same taxpayers. What a bunch of shysters and con-artists they are.

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  • I suggested around April that the 2012 Olympics would be the first cancelled before the Olympics before it even took place. Obviously I was wrong but you get the point?

    I’ve had a great idea for a Conservative Party Memorabilia Item. The ‘Labour Party Book-Ends’. One book-end will be the Millenium Dome and the other the Olympic Stadium because those two white elephants will have book-ended the Labour government.

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  • @Mark W,

    You make it sound like the evil speculators are buying up land, applying for planning permission, then selling it at 10x the price to the angelic Housing Associations? I think that’s a fairly big assumption based on just a few words at the end of one article.

    @plato,

    “Meanwhile: Agricultural Land value has increased.”

    There’s a relevant article in the Editor’s Choice list:

    FT: Farms topple from their peak
    Previously rocketing farmland values appear to have peaked in the third quarter despite continuing interest among investors.

    English farmland values fell by almost 1 per cent in the third quarter of 2008, according to Knight Frank, after several quarters of record double-digit price increases.

    Knight Frank forecasts that land prices in the sector will fall by between 2 per cent and 5 per cent in the next 12 months.

    Annual growth in the third quarter was still a healthy 27 per cent, but this has fallen from a peak of almost 38 per cent in the second quarter.

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  • Thanks drewster @ 2:28PM

    That was quick. Getting scared to say anything I think is a fact with the speed of things.

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  • mark wadsworth says:

    @ Drewster, I have been watching the property market and all its actors, and the effects of tax and subsidies, artificial supply constraints etc closely for decades, this all fits the general pattern. Why on earth should one arm of The State be paying good money for an asset which only derives its value from planning permission granted by another arm of The State and which is falling in value anyway? LVT would sort all that out of course …

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