UK land values and house prices to continue growth

PETALING JAYA: House prices and land values in the UK are expected to see continued growth as optimism improves and appetite for city centre developments returns, according to the latest CB Richard Ellis (CBRE) UK Regional Residential ViewPoint.

In the fourth quarter of 2013 (4Q13), transaction volume in UK reached its highest annual rate, while house prices were 14% above their 2007 peak, and the price of a typical UK house rose an average of 2.7%. This followed various government initiatives to stimulate activity in the market by generated development and assisted residential sales through the Help-To-Buy  Equity Loan Scheme.

CBRE noted there were 1,077,510 transactions in 2013, up 16% from a year ago, and prices rose 7.1% over the year as a whole.

The outer metropolitan area was the strongest performing region, with an annual price growth of 8.6%. South of England and the Midlands continued to outperform the northern regions. The North continued to be the weakest English UK region, with prices climbing 1.9% over the year.

Jennet Siebrits, CBRE head of residential research UK, warned that realistic national house price growth and the resultant increase in land values can only be sustained if wages rise or the cost of living fails to keep pace.

CBRE said government incentives will undoubtedly fall away as the market starts to gain momentum. The concern is that once this is withdrawn there is little to support continued growth, and the residential development land market may fall rather than stabilise.

Activity remains strong in central London, which saw 20% average land value growth. Southeast Asian buyers have been snapping up larger lot sizes in East London, particularly around the vicinity of the Isle of Dogs.

Interest continued to build up in Southeast London, which charted a 20% to 25% average annual land value growth. Agents report more offers being received for each lot compared with the early part of the year. Good locations with high gross development values are most in demand. Despite a pick-up in demand for more peripheral sites, they remain unfavoured.

Southwest London saw a 15% to 20% average annual land value growth on the back of improved buying sentiment and increased activity with house builders bidding aggressively for strategic sites and off-market brownfield opportunities.

Demand has also started to gather pace in Build-to-Rent with property companies looking at permitted development rights to generate a portfolio where underlying rental demand is strong. Smaller niche developers with fund backing have begun to challenge volume builders for smaller sites of up to 75 units.

Annual land value in South Central London played catch up in 4Q14, with average land values growing between 15% and 20% after years of little activity and investment in land caused by general lack of confidence.

A similar situation was played out in the Midlands, where average annual land value grew 20%, buoyed by more good quality land in the market in 2013.

The Help-to-Buy scheme has been the key driver in increasing activity in land markets, pushing annual land growth between 10% and 25% across North London. Although price rises haven’t been huge here, rates of sale have picked up markedly, vastly improving the level of demand for additional land from house builders.

The annual land value growth in Scotland has grown between 10% and 20%, fuelled by greater confidence from house builders due to government assistance for first-time buyers and a greater general confidence in the economy.

Volume builders continue to be aggressive in bidding for sites. Unit number requirements have been increased significantly north of the border, and in some instances turnover, targets and unit numbers up at least 50% from 2012.

This article first appeared in The Edge Financial Daily, on March 14, 2014.

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