16 April 2020
The average value of greenfield residential development land has held in price over the past 12 months, in the context of the political uncertainty that characterised 2019. The UK General Election in December 2019 restored confidence in buyers of homes and land, with an increase in certainty offered by the new Government’s majority in addition to its strategies for Brexit and the wider economy.
Despite the relatively high levels of planning consents coming forward, the market in many parts of the UK has been underpinned over the past 12 months by a lack of land supply. As such, with medium to long term new homes targets, housebuilders have had to remain competitive in order to secure new opportunities.
This trend has manifested itself with the strongest demand for policy compliant, deliverable sites of 50-150 plots. Development opportunities at this scale have attracted a broad range of bidders, including some of the major national and plc housebuilders, where we have witnessed a reduction in their minimum requirements in order to secure new land opportunities.
The outbreak of COVID-19, declared by the World Health Organisation as a ‘Global Pandemic’ on 11 March 2020, has impacted property markets in the UK. From our own experience in dealing with development land transactions through this challenging period, we have witnessed a slowdown in market activity as a result of the increase in restrictive measures put in place by central Government.
For the time being, we have noted housebuilders are focused on preserving cash flow, protecting their businesses and dealing with the operational challenges of temporary site closures and protecting their staff in line with central Government advice.
Nonetheless, purchasers remain committed to development land transactions and would appear loath to lose the positions achieved on sites that were keenly contested in January and February, but not yet transacted. Current sentiment recognises the current economic turbulence is not the result of any wider market failure, rather the current health crisis.
As such we have not witnessed an impact on average prices but are instead handling purchaser requests for delayed completions or deferred payment terms. Such decisions are influenced by a requirement to maintain cashflow in the short term. Purchasers are also acknowledging the typical time lag between land sale and new homes marketing, by which point housebuilders anticipate improvements in residential market sentiment.
The strategic land market has been resilient to date, with investors, land promoters and developers all acknowledging the longer-term return profile associated with strategic land investment. We are reporting good levels of activity in the negotiation of new option and promotion agreements, with land promoters and developers continuing to employ acquisition strategies to meet their medium to long term aspirations. We expect this to continue as the strategic land market provides a focus on planning gain and revenue projection in medium to longer term.
We also anticipate greater activity in freehold transactions of strategic land, as vendors seek to raise capital in the short to medium term and developers/investors use cash reserves to secure stronger short-term positions in long term promotional projects.
For further information on our Planning & Development response to COVID-19, please click here.