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Land value growth moderates in England and Wales

However residential development land values in prime central London continued their strong growth, ending the year up 24%, the latest report from Knight Frank shows.

Greenfield residential development land values remained broadly static in the final quarter of 2014, rising by just 0.1%. Grainne Gilmore, head of UK residential research at Knight Frank pointed out that the annual rate of growth at 2.3% is well below the 7.2% average growth seen in house prices over the year.

‘However it is likely that land price growth will remain subdued over the coming year as rising costs press on margins,’ she explained, and added that activity in the land market has certainly picked up over the last 12 to 18 months. This is reflected in 17% rise in private units under construction across the UK in December 2014 compared to December 2013.

The report also shows that there has been an increase in activity in most regions with demand for new housing is also robust across most parts of the country. Indeed, the take-up of the Government’s Help to Buy Equity Loan scheme rising to 38,052 in the 20 months to November 2014, with some 83% of these being first time buyers.

The supply of land has also risen, with the activities of land promoters helping boost the pipeline of oven-ready sites. ‘This, in turn, has started to weigh on pricing as while there is still sturdy competition for good sites, it is less fierce,’ explained Gilmore.

The report also explains that another factor weighing on green field land prices is the increasing cost of labour and materials. The industry is still gearing up after the recession, and recruitment of new tradesmen is proving problematic in many areas.

Gilmore also said that it is no coincidence that the cost of building in the UK has risen up the international rankings. ‘It is now the eighth most expensive country in which to build, from 43 countries surveyed, according to Arcadis, the design consultancy firm, although the relative strength of sterling to the Euro this year has also played a part in this calculation. In prime central London however, the trend is very different,’ she added.

Average residential development land values rose by 24% in 2014, up from a modest 2.5% increase in 2012. This takes the cumulative increase in land values since September 2011 to 48%, although this is still lagging the 72% increase in residential property prices seen since the trough in the market after the financial crisis.

Rising land prices have helped push the cost of building in central London to the top of the international rankings with the planning system and complicated construction needs also boosting the expense of construction.

‘There has been much competition for land in prime central London, with oven-ready sites particularly sought after. International demand has also been strong in this market, with some very high prices being recorded during the course of the year which has pushed up the index,’ Gilmore pointed out.

‘It is likely that 2015 will be a more benign year for price growth as more developers start to factor in construction cost inflation that they now face,’ she added.

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