The fall in property prices could wipe out the equivalent of more than a decade of profits in the house building sector as developers revalue their assets to reflect the lower value of the land on their balance sheets, according to industry analysts.
About £2bn has already been written off by the big six nationwide house builders, £600m of it when Persimmon took a provision against the value of its land bank last week.
Intangible assets, mainly goodwill, have also been slashed by nearly £900m, with the remaining £1.4bn also expected to translate into future writedowns.
Analysts are now predicting that a further decline in the property market will require yet more writedowns, with Panmure Gordon estimating a final figure of £5bn by 2011, including the writedowns to date.
Merrill Lynch, meanwhile, has estimated up to an additional £9.9bn will need to be provided for declines in value based on the most bearish accounting treatment. Also, taking into account further writedowns on goodwill, the figure mounts to £11.3bn and rises to £13.3bn when the impairments previously recorded are included.
On its worst-case estimates, Merrill’s methodology leaves the big six developers with assets valued at £2.7bn. That is close to the combined £2.6bn in market capitalisation of the companies following a rally at the end of last week.