Greenfield outperforms

During 2012, greenfield values were up 3.6%, while urban values grew by 1.7%. Both outperformed national house price growth, which fell by -1.1% (see Graph 1 in gallery).

These small value increases reflect a general shortage of suitable, permissioned land in the market, despite early signs that the National Planning Policy Framework is leading to more consents, including those from appeal decisions.

At the same time, demand has increased as housebuilders and developers have worked through their inventory of sites brought prior to the downturn, and are now actively seeking to bolster their land pipeline.

The problem is particularly acute in the West Midlands and South Wales, where very specific market conditions have buoyed land values. An acute shortage of permissioned land, the result of hold ups in local planning systems, has pushed up values as buyers have bid for a limited pool of sites. Savills Western region Greenfield Index recorded growth of 3.1% over the last six months of 2012 alone.

Broadly, the southern regions still outperform those in the north in terms of land value recovery, but the full picture is more complex than a straightforward regional one. Housebuilders are targeting their activity, so demand is strong for consented land in high-value regional towns and cities across the whole country. While locations in the South East still dominate the top 10 performing locations for land price growth in 2012 (see Table 1 below), locations in the West Midlands, South West, Wales and Scotland are also present.

Cash buyers have edge

Recapitalised housebuilders, reporting steadily increasing profits and reduced debt, are increasingly using their balance sheets to fund land purchases. This has become particularly important in stronger housing markets with limited stocks of permissioned land, where competition is greatest. In these markets, cash buyers have the edge to seal the deal. In central London, nearly all transactions are taking place on this basis.

By contrast, funding and risk issues still remain a major barrier to bringing forward large, complex and marginal sites. This has created the necessity of a ‘build now, pay later’ land development model. Some landowners will increasingly need to be co-investors or joint-venture rather than outright, up-front sellers. This applies to both the public and private sector, but some of the public sector land initiatives recently announced have the potential to start bridging the delivery risk gap.

London land resilient

Buoyed by overseas equity and a strong domestic economy, demand for London residential property is high, and the London land market remains resilient. Land values in some central London locations in are now in excess of their 2008 peak. Trading is brisk. There were over 220 residential land transactions in London in the 12 months to October 2012, according to Molior. In total, 71% of these deals were within London transport zones 1 and 2.

This reflects investor demand for flats in central London, with recent schemes achieving high levels of market absorption aided by strong sales at overseas launch, forward funding the development process.

Some 21.4% of land transactions took place in Westminster, the heart of prime central London and lead recipient of global wealth. After Westminster, the boroughs that saw the greatest volume of land transactions were Camden (8.5%), Southwark (7.6%), Wandsworth (7.1%) and Lambeth (6.7%). On the edge of prime London, land in these boroughs has the greatest potential for value uplift through placemaking and infrastructure improvements.

Taken from
MIM: UK Residential Development Land Feb 13