RESIDENTIAL LAND – IS ANYBODY BUYING?

Residential Land News

Given the seemingly relentless negative commentary within the media it would seem reasonable to assume that the residential market has all but collapsed.  Whilst there is undoubtedly truth in part of this statement, has the market collapsed totally?

FHP’s recent experience in the marketing of 2 no. residential sites would suggest that a market still exists for residential development sites, albeit far more cautious to reflect the uncertainties that currently prevail.  By way of example, a 1.7 acre site on Woodborough Road, Mapperley Park, Nottingham was marketed in June 2008.  Whilst a planning brief existed there was no implementable consent, and as such offers were invited on a subject to planning basis.  In total, 6 offers were received.  Reflecting current market conditions, these were slightly below anticipated levels (circa 5-10%), and more significantly the levels of due diligence undertaken and the format of offers varied more widely than hoped.  By way of example, unconditional offers at a reduced financial level were received, together with offers based upon a percentage of Gross Development Value (payable on the sale of completed houses).

Additionally, FHP marketed a 3.6 acre site in Syston in Leicestershire in early July 2008.  Again, whilst the site had a good prognosis for residential development, no consent currently existed.  Accordingly, offers were invited on a subject to planning basis.  Eight offers were received, all in the format requested and at a financial level in line with that anticipated (circa £1,000,000 per acre).

Whilst there is no doubt that the value of residential land has fallen over the past 12-18 months, our experience shows that a market of reasonable depth still exists for good quality residential land.  The marketing of these sites demonstrates that competition still exist between developers, however they are being far more choosy as to which sites they wish to acquire.  As you would expect, there has been a strong backlash against apartment schemes due to low sales levels within this sub-sector.  Whilst the reduction in land values is partly a subjective response to issues of market confidence, this is underpinned by harsh market experience of sales rates and the discounts required to achieve them.  By way of example, it has become routine (particularly in respect of apartment stock) for house builders to offer discounts of between 15 and 20%.  Indeed, there are examples of housing associations acquiring new build houses at discounts of up to 30%.

Should you require any further information in respect of residential or other market sectors, in connection with the consideration of both existing and proposed loan security, please do not hesitate to contact Stuart Horne on 0115 8411149.