Prime London Land Values Fall
The average value of residential development land in prime London areas fell by more than 10% in the third quarter of 2016, a recent report from property management firm Knight Frank shows. The decline, which was also the largest for at least five years, highlights the impact Brexit-related uncertainty is having on investors’ willingness to take a bet on London property.
According to Knight Frank’s data, the average value of residential development land in Prime Central London was 10.3% lower in the third quarter of 2016 than the same period in 2015. That’s the fourth straight quarter land values for this sector have fallen and is bigger than the 9.4% drop reported in the second quarter.
“Going into the EU referendum, Prime London land and property prices were high, so it’s no surprise the vote for Brexit has weighed on those values,” said Denhan Guaranteed Rent. “Investors and developers need to know they can achieve a certain profit and if prices for the finished product need to fall, this filters down the price paid for the land.”
The performance of land values in Prime Central London compare unfavourably with other regions. Knight Frank’s report showed that England greenfield land value fell by a smaller 3.9% in the third quarter of 2016 from a year earlier, while urban land values rose 6% over the same period.
That difference is likely explained by the still high demand for urban living not being met with enough new developments in areas people want to live in and can – just about – still afford. For much of Prime Central London, however, it’s less about affordability and more about investment plans – hence the large difference in performance.
“People may dream of living in the more expensive areas of London, but in reality, it’s just not achievable for the vast majority of Britons,” said Best Gapp, Belgravia estate agent. “Demand for Prime London regions is driven by different factors to the areas and homes ‘normal’ working people should be able to afford.”
But, despite the sharp decline in London land values, a separate Knight Frank report shows home owners remain confident that the price of their home is still rising. In its November house price sentiment index, the property firm found fewer people estimated the value of their home was higher in November than October. Seven out of the 11 regions estimated prices rose, while the remaining four, including the two north-east of England areas, were of the view the value of their homes were lower in November than December.
Home-owners’ outlook, however, was more upbeat as they continue to expect further property price increases over the next 12 months. Although, the strength of expectations was also a little weaker than in the previous survey.
“Home-owners are clearly still feeling the uncertainty of Brexit and are concerned about what a post-Brexit UK will mean for the value of their property,” said Andrew Reeves, a Pimlico estate agent. “That is being expressed through the slower pace of house price growth, the survey suggests people are anticipating.”