Residential land values have stagnated or fallen over the last three months with a low level of sales taking place, according to the latest development land index from Savills.
Overall green field development land prices fell by 0.4% in the third quarter of 2016 while urban development land values have increased by just 0.1%.
It suggests that since the European Union referendum in June sentiment in the development land market is more neutral for both green field and urban land. Land buyers are prepared to take less risk in buying sites and in some cases hurdle rates have been increased.
Most areas of the country have seen no changes to land values since June with low levels of transactions being part of the picture. The small shift in the UK wide index results reflects price falls seen in parts of the country including Kent, Cornwall and Scotland, the report explains.
It also points out that in Kent, there is limited competition for lower value sites at present, although the better areas continue to perform. This is because the county is dominated by major housebuilders who hesitated post Brexit. While land buying activity in Cornwall and Scotland has been maintained on the whole those purchasing land require higher margins which is reducing the value they are prepared to pay for sites.
"Land buyers caution means that there is a focus towards lower risk sites. There is continued activity and prices are holding up, or even slightly increasing, for the best sites. The best sites tend to be those in economically strong markets where house price growth has not peaked," the report said.
The index also shows that demand has been maintained for green field sites in locations west and north of London including around Milton Keynes, Newbury and Reading. Markets such as Cheltenham have also continued to see sales of smaller sites. In and around Bristol, both major and regional housebuilders are competing for land where supply levels have not been keeping up with the growth of the city.
City centre sites in Birmingham have seen continued demand as underlying regeneration stimulus such as HS2 and the demand for Build to Rent have supported land value growth.
The report also says that investors who had previously focused on London are looking for opportunities beyond the capital and are supporting the demand for sites in the city while house builders are watching sales rates on new build developments closely to understand the current market, alongside other market indicators.
Savills’ survey of agents shows that a net balance of 10% to 17% of agents noted a decrease in the number of bids per site compared to last quarter. There are, however, some areas where the number of bids has been maintained.
Amongst markets showing recent strength, bid levels have been relatively strong in the markets in and around Birmingham, consistent with the land value growth seen in the city, the report says, while in London the strongest demand and most sales are in outer London in markets where new build sales values are £450 to £850 per square foot.
However, values for residential development land in central London have fallen by an average of 8.9% in the last six months and down 10.2% year on year which Savills says is predominantly due to a decrease in house prices. Central areas of Mayfair and Knightsbridge have felt the greatest impact; our prime central London house price index shows that second hand house prices have fallen by 10.6% since the 2014 peak, in large part due to stamp duty changes.
However, in outer London, which the index currently does not cover, there is some of the strongest demand for land and values are more stable.
