Development Land Market Starts Moving Again
Land owners are slowly realising that the loss in land value is not a short term effect and many are considering testing the market to see what level of price they may be able to achieve. At this time, a number of residential developers are returning to the market with an appetite for purchasing land. Sites are starting to change hands but purchasers are very selective. They are looking for well-located sites of a minimum of two to three acres which offer good potential for building houses rather than flats, and with no major or limited upfront infrastructure costs. Completing blocks of flats demands a large initial outlay and the stock of existing housing units is approaching an all-time low, and as the volume of house sales grows house values have started to rise.
The larger residential PLCs have access to funds to purchase sites, although some have a preference for land swap deals. Availability of finance is still key to the survival of small to medium sized operators and they continue to struggle to secure funds, limiting the movement of the market back to true growth.
Land values are currently between 40% and 60% of their peak value in 2007 and there is unlikely to be any major upturn over the next 12 to 18 months. Banks also have to control the release of distressed assets to avoid saturating the market which could lead to a double-dip recession in the sector.
Further to this, public sector cost cutting within the next few years may:
- Cause a downturn in demand for houses through lack of confidence and increased redundancies
- Release more land assets to realise asset value
- Impact on future planning policies where major releases of thousands of housing units were proposed
The public sector also has a key role in facilitating new development by allowing developers and landowners to negotiate section 75 agreements. Many agreements were put in place at the peak of the market and have saddled a large number of consented sites with fixed, upfront costs which make development financially unviable. Local authorities will need to relax these agreements in many areas if they want to facilitate the release of new housing stock.
Looking forward, our advice to clients with housing land will include:
- Seek to minimise upfront infrastructure costs
- Consider a flexible approach to payment of the site, such as a small upfront payment and drip feed future payments on completion of units
- Seek to renegotiate section 75 agreements where possible
- Reconsider current consents in light of changing market demand
- Be flexible
For more information on Ryden’s advice for development land owners and purchasers please contact David Fraser on 0131 473 3273 or at david.fraser@ryden.co.uk or Russell Rutherford on 0141 270 3128 or at russell.rutherford@ryden.co.uk
