Value of greenfield development land up as confidence improves in housing market

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Residential development land across the UK is increasing in value, as confidence in the housebuilding sector is at the highest level for over three years, according to international real estate adviser, Savills.

New data from the real estate company’s residential development land index, released on Friday, shows that the South East of England leads the way with increases in land prices, however key urban markets such as Manchester and Birmingham, that have remained dormant since 2008, are also showing signs of improvement.

Savills reported that greenfield development land prices rose by 3.0% in the fourth quarter of 2013 and increased by 6.5% over the year. Urban land values also grew by 6.7% over the year.

The value of large sites has also grown as confidence has increased, with the value of 30 acre permissioned sites rising by 7.5% in 2013, compared to 5.8% and 6.4% for one and five acre sites, respectively. Housebuilders and developers are targeting larger permissioned sites in better markets that have capacity for up to 200 units and are looking to replenish supply pipelines, in order to continue building out at the higher rates.

Investors, developers and financiers are also investing in strategic land where it is possible to sell quickly enough to generate a competitive return on capital. These sites, which stalled in the downturn, are said to be entering a new phase of activity, with plans re-evaluated for the new market era.

The new Savills valuer survey, which surveyed 90 locations, indicated that around three-quarters reported positive sentiment in the final quarter of 2013, compared to 69% in the third quarter. There was also a sharp increase in the number of locations recording price rises on closed deals, with 68% of greenfield locations reporting a value uplift in the fourth quarter of 2013, compared to just 31% in the third quarter.

Jim Ward, Savills director of residential research commented: “Improved confidence in the housing market is playing out in the land markets, with value growth driven by a strong demand for land.” He added: “Acquisitive housebuilders are now channelling debt and equity into longer term sites to secure pipeline, in a clear acknowledgement that sales rates and therefore optimum build rates have bottomed out in all but the most challenged locations.

Ward concluded: “This increased demand, in a market where supply remains constrained, means that land values are expected to continue their upwards trajectory. This accentuates the need for the volume of land coming through the reformed planning system to continue increasing at the rates we have seen during the last 18 months.”

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