Property firms warn of falling prices

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The Independent Online

The global credit crisis has already had a serious impact on both the residential and commercial property markets and the problems will continue, two of Britain's biggest property companies warned yesterday.

Bovis Homes, the housebuilder, said it expected its average sale price for 2007 to be 3 per cent lower than a year ago, while Liberty International, the real estate investment trust, warned investors' appetite for commercial property was showing signs of waning.

Bovis, the UK's fifth- largest housebuilder, warned that consumer confidence had been damaged by turmoil in the financial markets. "People have become nervous," said Malcolm Harris, the company's chief executive. "What we need is for the market to return to normality and people to get their confidence back."

In a trading statement, Bovis said it was already seeing a slowdown in the UK's housing market, predicting that its completed sale volumes for this year would be slightly lower than in 2006. "Recent events in the financial markets have adversely affected consumer confidence, resulting in sales being lower than anticipated during the key autumn selling period," it said.

While its prediction of a 3 per cent decline in the average price of one of its new houses reflects a change in the mix of properties it has built, the fall reflects warnings from other housing market analysts in recent weeks. House prices fell during October for the first time in two years according to Hometrack, the property specialist, while the Council for Mortgage Lenders said mortgage approvals last month were at a 26-month low.

Bovis's warning coincided with a cautious trading update from Liberty, which owns many of Britain's largest shopping centres, as well as a wider portfolio of commercial property.

Liberty reported a strong set of third-quarter results, with profits up 18 per cent compared to the same period a year ago, but it warned investors were becoming increasingly nervous about commercial property, with valuations already falling in many areas of the sector.

"Investor enthusiasm for the quoted UK property sector has diminished in 2007 as negative sentiment from the US sub-prime mortgage lending market spread across the Atlantic," said Sir Robert Finch, the company's chairman, who also said he remained convinced the longer-term outlook remained benign.

"The third quarter saw torrid conditions in the UK inter-bank sector including the highly-publicised troubles of Northern Rock. While credit market conditions have put upward pressure on lending margins and unsettled UK property investors, one favourable consequence has been a lowering of interest rate expectations."

Liberty said that while valuations of prime property assets such as the biggest shopping centres remained strong, there had been some weakening elsewhere in the market.

Its warning follows figures from the Investment Property Databank, which last month warned that the value of retail-related real estate fell by 2.9 per cent during the third quarter of the year. The IPD said such property might drop in value over the year as a whole for the first time in 12 years.

David Fischel, Liberty's chief executive, added: "The commercial market is getting some of the backwash of the problems in the banking sector and the domestic US housing market."

A commercial property market correction would be particularly problematic for many private investors, who have pumped several billion pounds into funds investing in the sector over the past two years.