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Development land prices rising in UK after two years of decline

The latest research from property consultants Savills shows that the value of residential development land rose by 3.6% in the third quarter of 2009 after two years of falling prices that halved values across the UK.

Prices have stopped falling in most regions with the only exception being the North of the country.

Overall greenfield land values rose 3.6% and urban land went up by 0.2%. London saw the biggest rise of 8.6% followed by the West Midlands and the South West at 6.3%.

‘Improved sales prospects for housebuilders mean that the market for good, oven ready sites is active again’, says Yolande Barnes, head of Savills residential research.

She pointed out that there is a noticeable difference between the performance of urban land and greenfield.

‘There is demand for the most easily developable sites but urban sites for flatted development are not often among them.

Similarly, small, oven-ready sites are vastly preferred to large, infrastructure-intensive ones,’ she explained.

There is a noticeable difference too in the Savills indices between the land markets in areas of high housing demand where developers are now keen to build and those where of demand is still suppressed, and where the supply of residential stock has been more plentiful.
The northern region, for example, has seen falls of nearly 12% in urban land values this quarter, bringing total falls from peak to nearly -70%. Meanwhile, the West Midlands and South West rose by 6.3%, meaning that total falls from peak are just 50%.

‘The land market is driven by the confidence of housebuilders.

They have seen some activity return to certain of their markets. Most noticeably, demand has increased for houses in the equity rich markets of the South and housebuilders are looking for small, less risky, easy to develop plots for this type of housing,’ said Barnes.

‘They want plots that they can start, build and finish within a year, without recourse to expensive and difficult-to-obtain debt finance.

The search is on for these small plots with planning permission, for houses in high demand areas.

Anything larger, needing extensive infrastructure provision and costly section 106 agreements is often still in mothballs and unviable given today’s market values,’ she added.

She concludes that the outlook for development land is mixed. ‘Any further stalls in the housing market will reflect in housebuilder confidence and could again suppress demand even for the small sites.

But in the longer term a lack of suitable sites in areas of highest demand will be a very real issue,’ she aid.