Economic News

LONDON (ShareCast) - A lack of access to sufficient cash could restrict the quoted housebuilders to putting up houses rather than flats on smaller sites and serviced plots.

Upmarket estate agent Savills (LSE: SVS.L - news) says new sites are tending to be small, up to 50 units, as larger builders struggle under a pile of debt despite recent fundraisings.

Taylor Wimpey (LSE: TW.L - news) tapped the market for £510m a month ago, but is still weighed down by debt of over £1bn.

It also thinks debt finance will be severely constrained "for many years to come", leaving the big guys focused on building out low risk sites with quick cash flow for the foreseeable future.

"Therefore, the market value of small sites and serviced plots is likely to be above the residual value curve, particularly in the higher demand markets where we see an earlier and faster recovery in house prices, sales rates and viability," the property group added.

Savills says the average value of UK greenfield development land has sunk by 54% from its peak in September 2007, similar to the 56% slump in urban land since its September 2004.

The north has seen the largest falls, down 64%, while London residential development land value is now down 46% from the highs witnessed in September 2007.

It's said sustained house price growth is unlikely until households have rebuilt their finances and job losses have turned into employment growth, suggesting house price growth in 2011/2012.

The south of England is expected to lead the way. Savills said today that houses priced at between £1m and £4m were up by 4.3% in central London during the second quarter of 2009.

Luxury property prices haven't risen in London for a year and a half and have slumped by more than 23% between the last quarter of 2007 and the first three months of this year.

Savills reckons the equity rich prime markets could recover more quickly if the optimists on economic recovery are right, although it does remain cautious.