UK resi development land prices fall

The prices of land for residential development have fallen across the UK in the three months to June, with central London recording the steepest decline as housebuilders adopted a wait-and-see attitude in the run-up to the EU referendum.

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development construction workers on scaffolding rs

Development Construction Workers on Scaffolding Rs

Prime central land prices in London fell by 6.9% in the quarter, bringing the annual decline to 9.4%, according to Knight Frank’s latest Residential Development Land Index, which was released on Wednesday. Prices are now back at 2014 levels after two years of strong growth.

Greenfield development land prices also fell by 2.3% between April and the end of June, taking the annual decline to 3.8%, while the price of urban brownfield land slipped 1.1% in the quarter but still recorded strong annual growth of 9.1%, making it the best-performing sector.

The uncertainty over the consequences of Brexit is leading housebuilders to take a more cautious approach, said Grainne Gilmore, head of UK residential research at Knight Frank.

‘Some housebuilders and developers are increasing their margins and hurdle rates on greenfield and prime central London deals,’ she said. ‘This is in order to allow for increased uncertainty over the future economic landscape as the UK negotiates its way to a new position within Europe. This is feeding into land prices.’

London in particular is also being affected by construction costs, which have risen considerably over the last two years and are now ‘altering the viability of some sites and in some cases this had led to a trimming of land costs’.

In other UK regions demand for city centre sites is still very strong, Knight Frank said. Developers reported that activity continued in the run-up to the June referendum and house purchase rates remained steady, especially in the regional markets. ‘The fundamentals of the market, characterised by an imbalance between supply and demand and ultra-low mortgage rates, remain unchanged,’ Gilmore said.

Greenfield sites close to urban areas and with good transport links are the most in demand, according to Knight Frank research, and competition for such opportunities has intensified in the last few months.