Builders advised to sell small plots amid sluggish land prices

Published on Tuesday 11 May 2010 21:02

HOUSE-BUILDERS in Scotland will continue to be under pressure as the value of their land banks stays depressed amid a lack of lending and as local authorities lift the cost of development, according to a new report.

Estate agent Savills said UK and Scottish development land markets were emerging from a period of dramatic falls during the recession, but that the Scottish market was more badly affected than that of the UK.

At the end of 2009, Scottish land values were 58 per cent below their 2007 peak in the case of greenfield land, and 62 per cent lower for urban land. These falls are steeper than the UK average falls of 54 per cent and 58 per cent respectively.

According to the report, The Future of UK Residential Development Land, confidence is returning to the market for land in Scotland, but only for smaller "oven ready" plots, or those that are easy to develop.

Peter Allen, director of development based in the Savills Edinburgh office, said: "Even in boom times, bulk land business models adopted by mass house-builders were put under great strain by the financial demands of the longer-term, infrastructure-hungry sites.

"It is difficult to see how large, complex sites located within a high-density urban setting can be brought forward in the absence of cost-effective debt-funding."

Allen said he did not expect the market for bulk land to recover "for some time" but said owners could drive up value by parcelling land into smaller, easier-to-develop plots. Savills said the few sites that were starting to trade tended to be sites of fewer than 50 units, often sold on easy, phased payment terms that favoured small-scale niche developers.

Savills warns that many bulk house-builders will struggle to raise finance as cash-strapped local authorities make them pay more for infrastructure such as roads and schools.

It says house-builders are "likely to remain under-capitalised and to hold land banks that require larger-scale, longer-term, higher risk strategies for which conventional funders have little appetite".