Land prices dip amid Brexit uncertainty

by: Carmen Reichman
  • 10/08/2016
  • 0
Land prices dip amid Brexit uncertainty
English land prices have dipped by as much as 6.9% between April and June as uncertainty over a British exit from the European Union caused developers to become more cautious in their purchasing.

The latest quarterly Knight Frank residential development land index showed the price of English greenfield development land had declined 2.3% between the first months of the year and the end of June. Annually these sites, which are undeveloped land, declined 3.8% in price.

Prime central London development land prices took the biggest cut in value, with pricing levels down 6.9% in the quarter, equating to a 9.4% fall year-on-year.

This was the sharpest drop both types of land have seen in any three-month period since June 2014. Regional urban land prices faired slightly better and were up 9.1% year-on-year, despite a 1.1% dip in the last quarter.

The UK decided it wanted to leave the EU in a referendum held on 23 June. According to Knight Frank, developers believed activity had continued in the run-up to the vote, with house purchase rates remaining steady, especially in the regional markets.

However, there have been signs elsewhere in the market of a more subdued approach to future residential property development.

For instance, developer Barratt said in a trading update in July it was “mindful of the greater uncertainty now facing the UK economy” and had put contingency plans in place, including risk reduction measures, such as reassessing land approvals, while it continued to monitor the market.

High-end developer CapCo was also forced to cut 14% (£200m) off the valuation of its Earls Court development, it’s July results showed. The company said at the time the valuation reflected the valuers’ assessments of the “weakened sentiment in the central London residential market following the EU referendum.”

But Knight Frank head of UK residential research Grainne Gilmore said Brexit uncertainty had led developers to increase their margins and hurdle rates on greenfield and prime central London land deals, which was feeding into land prices.

Construction costs have also risen over the last two years, leading to changes in land prices, she said.

“The fundamentals of the market, characterised by an imbalance between supply and demand and ultra-low mortgage rates, remain unchanged,” Gilmore explained.

Meanwhile, developers are facing pressure from the government to build more houses to help alleviate the country’s ‘housing crisis’.

The Communities and Local Government Committee launched an inquiry into the housebuilding industry in July, saying it wanted to find out whether the industry had the capacity to build enough houses or, if not, what constraints it was facing and how they could be overcome.

The initiative followed the government’s failure to meet housebuilding targets last year, after a mere 131,060 new homes were completed, fewer than half of what had been planned.

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