The impact of Covid-19 on UK residential development land markets

The Covid-19 pandemic is undoubtedly impacting real estate markets across the UK, with viewing levels falling and buyer sentiment taking a short-term hit.
2 minutes to read

Residential development land buyers are understandably becoming more cautious in these uncertain times. The appetite for land from the volume housebuilders directly reflects visitor numbers and reservations in their sales outlets. Whilst perhaps counterintuitively these have been relatively strong in the last few weeks, visitor numbers are now declining.

This shift follows a burst of renewed confidence at the turn of the year following December’s decisive General Election result, with both large and SME housebuilders competing for opportunities to buy land.

Demand even picked up in London zones 1 and 2, having dropped off in the months following the 2016 vote to leave the EU. A correction in land prices of more than 20% since the peak in 2015 means that to an increasing number of developers prime central London now looks like good value.

The reaction to current conditions has been mixed, however.

There is anecdotal evidence that some of the traditional volume housebuilders are deferring land purchases until more clarity emerges. At the same time, agents note that there is a strong appetite from the more entrepreneurial developers and private equity-backed land buyers looking to acquire opportunistically.

Such purchasers are balancing the potential for slower market conditions, as explored by my colleague Tom Bill in his latest prime market commentary, against the fact that land is a long-term consideration.

“There is caution, but sentiment towards buying land is still fairly positive. The fundamentals are still there,” according to Justin Gaze, Head of Residential Development Land at Knight Frank.

Indeed, a site in London Fields attracted nine offers earlier this week, three of which were over the guide price and the majority within 5%, whilst other deals around in regional markets appear to be going ahead.

“The real test will be to see where we are in a few weeks’ and whether sites which are due to come to market in that time are still brought forward,” Justin adds. Should agents decide to hold back it could result in a busier end to the year.

In 2018/19, just over 240,000 homes were added to housing stock in England, up 9% on the previous year, but some way below the government’s stated aim to boost annual housebuilding figures to 300,000. In Greater London, that shortfall was even greater, with 36,000 properties added to the city’s housing stock versus a new homes target of 52,000 a year. Such a large shortfall between stated demand and delivery is likely to mean that the long-term outlook for the land and development market remains positive.