UK land market prices dip amid uncertainty
Covid-19 interrupts a strong start to the year, but a sharp rebound in land values could follow
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Some housebuilders and developers are increasing their profit margins to reflect increased uncertainty as the UK works on rebuilding its economy in the aftermath of Covid-19.
This is also feeding into land prices, with vendors wanting to sell in the current market likely needing to accept a discount.
In prime central London, average residential development land prices fell 6%, according to Knight Frank’s Q2 Residential Development Land Index, marking the first quarterly decline since Q1 2019. Average values were also down 6% on an annual basis, following a static period that came after years of very strong growth, meaning the index has returned to 2013 levels.
Greenfield development land prices fell by 6% between April and the end of June, taking the annual fall to 8.6%.
Urban brownfield land prices also fell 6% during the quarter, and by 6.2% year-on-year.
But there are also positive signals in the market. Agents are not reporting much distress among landowners, for example, which would lead to more substantial price discounts.
In addition, the UK construction purchasing managers' index jumped to 55.3 in June, up from 28.9 in May, according to IHS Markit.
Previously, IHS Markit had reported an all-time low of 8.2 in April. Any score below 50 indicates an overall decline in output.
Going forward, we see the potential for a sharp rebound in land values should the wider property and economic market recovery be sustained, particularly if supply levels remain at or near current low levels.