UK land values up after 50% drop!

The value of residential development land in the UK has risen for the second quarter in a row but prices are still almost 50% below their peak of 2007, according to the latest research.

Urban land values rose by 1.1% and greenfield sites by 1.6% over the three months to the end of September, the Knight Frank Residential Development Land Index for the third quarter of 2009 shows.

But despite the recent growth, on an annual basis land values were down by 26.4% for urban sites and 16.8% for greenfield sites.

The increases are being driven by house builders who are obtaining finance for developments but private equity groups are still significant players, the index also shows.

‘The market is still very thin in volume terms, with a stand-off between land owners, who expect values to rise still further over the next 12 months as builders try to acquire land and to rebuild stocks, and purchasers who are finding development financing still in short supply,’ said Liam Bailey, head of residential research at Knight Frank.

He said that there has been a slight rise in the level of receivership stock coming to the market in recent months, however the lack of distressed sellers means the current market is very different to that experienced in the early 1990s.

‘Purchasers tend to be buying in cash or are only moderately debt fuelled.

Many of the builders and developers entering the market are looking to defer payment, either through option or overage agreements or staged payments.

Private equity buyers are still a strong force in the market,’ he explained.

The builders and developers coming into the market have been driven by concerns over weak stock pipelines for 2010 and 2011.

Some of these new buyers have not bought land since early 2007. So low future stocks is encouraging new purchases.

‘For a sector that has been beset by bad news from the onset of the credit crunch, the change in sentiment in the new-homes market in recent months has been dramatic.

With discounted properties selling well, and with some very useful help from shared equity products and government support, existing stocks are running low,’ added Bailey.

‘Unbelievable as it would have seemed a year ago, agents and builders are increasingly concerned regarding the lack of stock to sell especially when they look forward to next year’s spring market.

Looking ahead he said he expects that maintaining growth in the rate of new-build starts will not be straightforward.

The development sector has lost staff and skills and will take time to rebuild capacity.

But the biggest issue is how to access cut-price development land.

With the banks in no hurry to force distressed sales of the portfolios they lent against, there is precious little good land, namely land with workable planning consents, available to buy.

‘The growth of new development volumes will be a slow process suggesting that very tight new-build supply will remain a feature through 2010,’ he concluded.