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Can smaller developers still land a good deal?

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Property expert Nigel Lewis looks at how and why land prices are fluctuating at the moment.

There can be nothing more solid to invest in than the ground underneath our feet because, as author Mark Twain once said, they’re not making it anymore.

It’s a point well made, and a topic I’m sure many small and medium size developers mull over as they scour their area for new opportunities.

Land remains one of the costliest elements in a development, and until recently prices had been rising in line with the residential property market. On average, that was by over 15% in the UK’s more densely packed urban areas [1].

But the market for development land is being pulled in two directions by different forces. One is the Brexit vote [2] while the other is government legislation, which includes a pilot scheme that looks set to make it easier to get permission to build on brownfield sites [3].

Before the referendum, the market for development land had been motoring along nicely, Lucy Greenwood at Savills [4] tells me. However it cooled-off in the run-up to the vote, and the big developers are still waiting to see what happens next. For the moment, they are stopping or slowing down their land purchases, according to Lucy.

The pre-Brexit slowdown was particularly true in London’s prime central areas. Two years ago land prices in among its stucco-fronted houses were rising by 18.9% as demand for the area’s super-luxury property continued apace. By Knight Frank’s reckoning this had turned into a -1.8% annual drop in the March quarter [1].

It could lead to a potential opportunity for smaller builders who tend to be backed by private equity (and therefore don’t report to shareholders). These builders could have more freedom to buy up the sites that bigger developers are holding back on.

It also means the boot is on the other foot when it comes to paying for sites. Many smaller builders are now offering deferred payment terms rather than paying up front for land, which will help their cash flow.

How long this carries on for is a matter for debate, but it’s clear there are still opportunities out there for builders nimble enough to take them.

Find out how Barclays could make the difference for your clients when you talk to your Business Development Manager .

Sources

  1. Knight Frank website, ‘Multi-speed land market’, April 2016
  2. Rightmove, House Price Index, August 2016 – Overview
  3. Gov.uk, ‘First areas to push for brownfield development’, March 2016
  4. Savills

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