The rate of growth in English residential development land values slowed rapidly in the final quarter of 2010 according to the results of Knight Frank's Residential Development Land Index.
While greenfield land still managed a rise of 2% during the period October to December, English urban land values fell by 1% and in Greater London the fall was more significant at -2.5%.
The only urban market which avoided price falls was the prime London market which registered no change over the quarter.
The recent slowing in quarterly growth has pulled back annual rates of growth, which had hit 26% in prime London in Q2 2010. Greater London annual price growth ended the year at 4%, down from the 14% hit during the summer.
Despite rising values during 2009 and 2010, average residential development land values as at December 2010 were still 40% below their Q4 2007 peak.
Liam Bailey, Knight Frank's Head of Residential Research, comments: "The residential land market has been a fairly bright spot in the property sector over the past two years. While volumes of transactions were well down on peak levels there has been a steady recovery in pricing on average, values have climbed by around 20% from their early 2009 low.
"As we move into 2011, gathering problems are emerging, which seem likely to pull back some of this recovery in values.
"Funding problems continue to provide major difficulties for developers. In most cases there is no funding available for sites without planning consent, and even for land with a consent, loan-to-values of 50% and possibly 60% are the maximum provided.
"The few cash buyers in the market, who drove values forward in late 2009 and early 2010, have already spent a significant amount of money on sites over the past 24 months and are running low on funds.
"There is a risk for 2011 that with an increasing level of stock coming into the market, out of bank restructuring, supply will begin to rise just as demand is falling back.
"Our view is that land values are likely to fall back in 2011, but land transactions are likely to rise as supply rises from receivers begin to edge higher.
"That said, there are some positive market trends which should support pricing in the more desirable areas of the country especially greenfield, southern England markets.
"The main support for the land market is the ongoing scarcity of new build properties, with 2010 new-build completions estimated to be ca.101,000 (for England), still 42% below the total reached in 2007."
Ian Marris, Partner in Knight Frank's London Residential Development, comments: "The land market in London last year was characterized by a lack of funding, which has resulted in a landscape dominated by the limited number of parties who have access to cash. In particular, Berkeley Homes was extremely active, and as a consequence has succeeded in securing the majority of the prime London pipeline for the next three-four years.
"Going forward, there is now a more positive developer sentiment, with many housebuilders and developers purporting to be looking to secure new development sites. The limitation on activity in 2011 will continue to come from availability of funding, rather than from desire to build."
East Anglia and Thames Gateway
Charlie Hart, Partner in Knight Frank's Eastern Land division, comments on the regional market: "Knight Frank's Eastern land team covers two distinct markets in the region, which have undergone differing experiences over the past 12 months - albeit with possibly more aligned paths in the future.
"The regional residential land market in the last year has been positive, with numerous deals done - Knight Frank sold in excess of 350 housing plots as demand for good-quality housing remains strong, feeding off the relative strength of the central London economy; we see this set to continue.
"East London, however, saw little land trading. Planning permissions are struggle to achieve development funding, even though we are s