Strongest rise in residential development land values in England since 2005

LONDON: Average residential land prices in England rose by 11.5% in the 12 months to the end of March 2010, the strongest rate of growth since the first quarter of 2005, said Knight Frank LLP, an independent global property consultancy based in London.

Quarterly growth in the three months to the end of March equated to 2.4% for urban land and 6.6% for Greenfield land, it said in a recent statement.

London recorded the strongest quarterly growth in land values for urban land averaging 6.8% while the West Midlands averaged 12% for greenfield land. Demand was dominated by residential developers and house builders who made up 44% of buyers.

Supply of land for sale in the first quarter was led by private landowners (23.1%) and speculative land investors (19.2%).

Knight Frank’s head of residential research, Liam Bailey said, “Residential development land values are rising on the back of improving demand (up 15% in terms of purchaser applications in Q1 2010 compared to Q4 2009) and a slow growth in supply volumes (up 8% in supply of sites for sale over the same period).”

“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.

“While demand remains strong, it is constrained by the low availability of speculative development finance for projects over £10mil. The availability of finance continues to improve but slowly,” he said.

“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,” he added.

According to Bailey, house builders are in acquisition mode and 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, he said.

“In London, and 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,” he said.

“There are some signs that the supply of land in London could rise steadily over the course of 2010, potentially pushing land values lower, there have been a few more distressed land sales and smaller site sales over recent months, as the market has improved.

“Developers have also become concerned over the strong level of house price growth, which has continued into the second quarter of the year,” Bailey said.