Residential Building Land Report - Outer London

In Barking, Walthamstow, Chadwell Heath and Romford, the market for residential land remains active, with prime sites remaining in high demand and attracting high values. Higher permitted planning densities have had a positive effect in maintaining and enhancing land values.

The general market however is much more hesitant than before, and certainly developers are not projecting enhanced end sale values when bidding for sites, and there is general uncertainty about current house prices, the direction of the house market in the immediate future, development costs and interest rates. There have been few development sites coming onto the market recently and few sizeable land transactions that have taken place.

Sales of small sites, infill developments and brownfield sites continue, but again, there is less activity than earlier in the year. From transactional data, values vary greatly for such small sites, with average values being difficult to determine. Again prime small sites generate high demand and high transaction values, but in the main the market is very cautious.

In Hounslow and Ealing generally, the market is somewhat hesitant, although there is still residual confidence. There is certainly no collapse in the values of the established housing stock, though purchasers are seeking discounts of say 10% on asking prices. This has resulted in residential land prices easing back below 40% of gross development value.

Notwithstanding the above, the right product in the right place will still sell well. Brentford would be an example of a location with significant strength because of ongoing regeneration projects there.

In Enfield ,Barnet and Haringey, once again there have been few land transactions in these three boroughs since the previous report, with few development sites coming onto the market and no examples of transactions involving large sites. The majority of development opportunities continue to be small infill or brownfield sites.

Although sales evidence is inconclusive, there is continued anecdotal evidence of some uplift in land values, although at a lower level than has been seen for several years. This continued growth in land values is considered a function of the scarcity of development sites available.

In Brent, Harrow and Hillingdon, there has been little change in value. Despite press reports depicting a slump in house prices these have not carried over into the purchase price of available land. Agents are commenting on continued market demand for prime plots and strong interest has been witnessed in both new development and conversion schemes.

A sense of stability seems to be the general picture with one eye on the interest rates and Stamp Duty Land Tax steering the developers' bids.

In Kingston , Merton and Richmond developers would appear to be taking a cautious approach and very few sales have been recorded. The few sales that have taken place are largely small infill developments with some purchases by housing associations for social housing. The current uncertain nature of the housing market, the prospect of increased construction costs, and modest increase in interest rates suggests that land will remain static at best, and may fall slightly if the second hand market does not improve.

In Bromley, Croydon and Sutton the majority of development activity has centred around site assembly involving the acquisition of several detached houses with wide and deep plots. These have then been replaced with semi detached and terraced houses in the more attractive areas and by higher density flat developments where this is in keeping with the surrounding properties. There are rarely any large development opportunities and the requirement to include an element of affordable housing may be causing developers to concentrate on smaller schemes where this is not a requirement.

In Bexley, Greenwich and Lewisham, the number of recent transactions appears to be small but strong interest can still be expected in sites overlooking the Thames in all three boroughs. Even in less popular areas, where values in the past have been low, developers have sought opportunities as evidenced by Berkeley Homes purchase of Aragon Tower . This 24 storey council block overlooking the Thames in Deptford is to be refurbished as luxury flats and will have four storeys added to create new penthouses.

Development activity continues in North Thamesmead and there is no indication as yet that recent concerns regarding remediation have affected demand on this chronically contaminated land or on other former industrial sites along the tideway. Builders are still actively seeking small sites and opportunities to unlock back land and marriage value or intensify the use of individual plots in all areas.

The feeling across much of the country is that house prices have peaked and in some areas there is a suggestion of a slight decline. There is continued uncertainty as to whether houses prices will rise, fall or remain static in the next six to twelve months.

There is generally a continuing lack of supply of residential development land which is particularly apparent in respect of greenfield sites. Many local authorities, particularly across the north of England are reviewing their planning policies, and in the interim have imposed either planning moratoria or, at least, are restricting development to brownfield sites or smaller infill plots. Any developments, which do occur on these sites, are generally at higher densities than would have otherwise been the case.

There is a strong historic link between the fortunes of the housing market and the market for residential development land. Whilst the two markets do not always move in parallel it would be expected that uncertainty in the housing market would be reflected in a decline in the value of residential building land. Developers would normally seek to factor into their development plans the risk of future house price falls and the difficulty in disposing of completed units. The net effect of the residual calculations would be lower sums available for land purchase. However, across many areas it is felt that the lack of supply of available land coupled with continuing long term demand has resulted in residential building land prices holding up, even in areas with falling houses prices.

These opinions of the District Valuers are based on evidence derived from the limited number of land transactions that have occurred over the last six months. The brownfield sites and infill plots that have sold often have particular abnormal sites conditions to overcome that impact on the net amount of money a developer is prepared to commit to the site acquisition. Further, the attitude to affordable housing differs between local authorities and in some cases is site specific and negotiable.

All these factors make analysis and comparison between sites a challenge with the result that the market is increasingly difficult to value in general terms. Each site now has its own individual planning brief and additional planning requirements, including the provision of social housing, to the extent that land values are increasingly site specific.

The trends in the residential building land market may become clearer in the spring once price movements in the housing market itself become apparent and the longer term planning policies of many local authorities are finalised.