KUALA LUMPUR: Development land values in the United Kingdom is around 20% down year-on-year (y-o-y) while urban sites are at almost 50% below peak levels despite a marginal increase in two quarters in a row, reported Knight Frank in its Residential Development Land Index, Q3 2009.

Liam Bailey, head of residential research, Knight Frank said: “The market is still very thin in volume terms, with a stand-off between land-owners who expect values to rise further over the next 12 months as builders try to acquire land to rebuild stocks, and purchasers who are finding development financing still in short supply.”

He added that there has been a slight rise in the level of receivership stock coming to the market in recent months. “However, the lack of distressed sellers means the current market is very different to that experienced in the early 1990s.”

It is noted that purchasers tend to buy in cash or are only moderately debt-fuelled and private equity buyers remain a strong force in the market.

“Many of the builders and developers entering the market are looking to defer payment, either through option or overage agreements or staged payments. The builders and developers coming into the market have been driven by concerns over weak stock pipelines for 2010 and 2011 – some of these new buyers have not bought land since early 2007,” said Bailey.

The new-homes market segment is showing dramatic change in sentiment with discounted properties selling well and existing stocks running low.

Since the turn of the year, the volume of new-build has improved, as many builders started raising money to purchase new land and start building. But, this could be the result of less complex sites being built out, according to Knight Frank.

“Maintaining growth in the rate of new-build starts will not be straightforward. The biggest issue is how to access cut-price development land. With the banks in no hurry to force distressed sales of the portfolios they lent against, there is precious little good land, namely land with workable planning consents, available to buy,” said Bailey

Solutions can be found by new joint-venture arrangements between the banks and the newly re-financed developers. However, Knight Frank expects the growth of new development volume will be slow, therefore keeping the new-build supply at a tight level through 2010.

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