Housebuilder profitability has significantly improved from lows of 2009; the major housebuilders are now operating successfully in a smaller, more targeted market. The listed builders, along with many of the medium-sized firms, have refinanced allowing them to buy land and build out. Profits are up, and although capacity remains significantly down on its 2007 peak, the market is expanding, supported by equity loan schemes and NewBuy.
It is these large national and regional housebuilders that are the most active in the market. They are seeking mid-sized to large, good quality, readily developable sites to secure housing pipeline, typically 50-100 units in size, where unit sales have been strong. The focus is on high-value markets. In 2011, 44% of all land deals, by number, were undertaken in London and the South East, where these higher-value housing markets can be found.
The supply of land remains tight, with many landowners holding their interests in light of wider economic uncertainty. Those that are bringing forward sites, in buoyant housing market areas, are benefiting from multiple bids and achieving good prices. Sites in lower value areas are trading on deferred payment terms or with build licences, lowering risk to the developer and reducing requirements for scarce funding.
It is therefore no surprise that values in the South East continue to outperform the national average. Greenfield land values here grew by 1.8% in Q2 2012, bringing year-on-year growth to 3.2%. This compares to growth of 0.6% in the second quarter of 2012, and annual growth of 1.3%, nationally. These are averages. The very best sites in the region attract multiple bids and can achieve values well in excess of those anticipated.
The sub-15 unit parcel market, which was the most significant by number of deals undertaken in 2011, has traditionally been dominated by smaller housebuilders and local developers. These smaller players continue to be restricted by the amount of money they can borrow as banks tighten their lending criteria, regardless of covenant strength.
Urban land values grew by 0.3% in the quarter, up 0.7% on an annual basis, and by just 2.5% over the last two years.
For the short to medium-term, the majority of ‘bulk land’ around the country will not stack up as a development opportunity, and the issue of viability on these sites remains. Nonetheless, there is market for strategic land where appropriate planning obligations and levels of Community Infrastructure Levy (CIL) are in place.
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