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UK land for construction prices fall but developers don’t have the funds

A growing supply of residential land, particularly in the south east of the country, has no buyers, according to figures from the Valuation Office Agency.

Land transactions arranged in early 2008 are falling through or subject to renegotiation. 'Housebuilders have experienced such a sharp decline in sales that they have shelved buying land until perceived better times and those that have not mothballed sites have slowed production and reduced workforces,' said James Feltham, a senior consultant surveyor at DVS, the commercial arm of the VOA.

Examples include the King Alfred scheme in Hove which has fallen through as developer Karis cannot obtain the funding. In Southampton a residential and arts development in the city centre was halted when developer City Lofts went into administration and a landmark residential tower at the entrance to the City's Ocean Village has been halted.

However for those able to negotiate there are deals to be done, according to Feltham. 'Purchase prices can be negotiated 25% or more from their late 2007 peak and the developers' own helping hand schemes are often more attractive than shared ownership from registered social landlords,' he pointed out.

The VOA's latest property market report in July 2008, which records land transactions over the preceding six months, shows a 10.2% decrease in average land values for small sites, a 13.9% decrease for bulk land and a 28.2% decrease in sites for flats or maisonettes in the south-east compared with the January report.

'All this has had a marked effect on the land market. There are few buyers in the market and vendors are unwilling to sell. These factors combine to deliver few transactions,' he added.

They also create challenges for the government's housing delivery targets and for large percentages of affordable housing required by policies set in better times.