The fall is giving rise to fears that housebuilders will have to further reduce the value of land in their accounts. Many have already had large write-downs.
Savills' Building Land Price Index, which tracks the price of residential development land, fell 61.9 per cent in the three years after peaking in June 1989. The falls have been greatest in the East, South-east and West, where prices were down 68.2, 63.7 and 61.7 per cent respectively. In the North, where prices did not rise so much in the late 1980s, the fall has been limited to 28.8 per cent.
Yolande Barnes, head of residential research at Savills, said the falls took prices back to 1985 levels. During the past year the nationwide index had fallen only 5.2 per cent, indicating, she believed, that prices were bottoming out.
'I would not rule out further small falls, but that massive drop, I think, represents pretty much the bottom of the market because I see the falls very largely as an adjustment following steep rises in 1986, 1987 and 1988,' she said.
Savills' finding is the latest, and possibly the most severe, estimate of falls in the price of building land. Its accuracy, however, must be questionable because there have been so few land transactions.
Many brokers' analysts have warned clients that housebuilders have failed to make write-offs that accurately reflect the fall in land values, even though quoted housebuilders have written off more than pounds 550m against the value of their UK land banks in the last two years.
The biggest write-offs, as highlighted by County NatWest early this summer, have been made by Costain, John Laing, Wimpey, Barratt Developments and AMEC, which accounted for more than pounds 300m. The biggest was Costain, at pounds 75m, which compares with a residual UK land bank value of only pounds 64m.
Based on a roughly constant ratio of building land to house prices of 20 per cent over the past 10 years, County NatWest calculated that several companies have failed to make realistic write-offs. These include: Trafalgar House, Tarmac, John Mowlem, Costain and Crest Nicholson.