Double-digit price growth for England’s residential development land represents the sharpest rise in the past 5 years — buoyed by robust demand despite the limited access to lending. Over-pricing plagues the present supply, however, and there is a risk that excess available land could drive down values. See the following article from Property Wire for more on this.
The value of residential development land in England is increasing at its strongest rate since 2005, according to a new report. Average residential land prices rose by 11.5% in the year to the end of March and in the last three months quarterly growth was 2.4% for urban land and 6.6% for greenfield land, the Knight Frank Residential Development Land Index for the first quarter of 2010 shows.
The strongest quarterly growth in land values was urban land in London that averaged 6.8%, and the West Midlands where greenfield land averaged a 12% rise, the report also shows.
Demand in the market is dominated by residential developers and house builders who account for 44% of all buyers. While supply of land for sale is led by private land owners and speculative land investors, 23.1% and 19.2% respectively of all land sales in the first quarter.
Residential development land values are rising on the back of improving demand that is up 15% in terms of purchaser applications in the first quarter of 2010 compared to the last quarter of 2009 and a slow growth in supply volumes which are up 8% in supply of sites for sale over the same period, according to Liam Bailey, head of residential research at Knight Frank.
‘House price growth has certainly helped but it is the supply and demand dynamics in the land market which is really pushing prices higher across the country, especially in the south of England,’ he said.
He also points out that while demand remains strong, it is constrained by the low availability of speculative development finance for projects over £10 million. The availability of finance continues to improve but slowly.
‘The lack of quality opportunities is still a drag on market activity. A good portion of current available supply is tarnished through either over exposure or over pricing. The house builders are in acquisition mode and they are looking very hard at Greenfield locations where they are finding a wider range of attractive sites compared to six months ago. Greenfield land is still attracting a premium with the ease of construction and reduced margin for risk proving to be a key driver in bidding for land,’ Bailey explained.
The report also shows that developer strategies are divided across the UK, with deferred purchase still preferred route in the slower northern markets, but in the south there is a real need to get on with construction and builders are looking at opportunities where they can move on with developments rapidly.
‘In London, especially central London, the market is buoyant with much improved sentiment across the board. The land market has been lifted by the spectacular turn around in the capital’s housing market,’ said Bailey but he added that there are some signs that the supply of land in London could rise steadily over the course of 2010, potentially pushing land values lower.
Looking ahead developers are concerned over the strong level of house price growth which has continued into the second quarter of the year but much will depend on the banks strategy for releasing sites to the market and also their ability to provide the development finance to accompany these land sales, the report said.
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