Development opportunities need careful handling

Demand for development land is recovering in some areas, but work is needed to maximise opportunities for farmers and landowners.

“All sizes of developers are back in the market, from one-man bands to plc housebuilders,” said Stephen Rutledge of Fisher German’s Thame office.

“The big companies are most active – they have recapitalised after the financial hiatus, helped by profits from building out land bought relatively cheaply after 2008.”

Development land values varied widely depending on location. The South East, central South and Midlands contained most English hotspots, said Mr Rutledge. “Good 4+ acres sites on the edge of well-serviced towns can yield 50-70 houses and are worth up to £1m/acre, not far off pre-credit-crunch levels.”

Smaller plots of half an acre suitable for four to five village houses were likely to be worth even more as they would not be subject to Section 106 agreements. These imposed certain site-specific requirements, such as improved or additional infrastructure or a proportion of affordable housing, which could substantially reduce profit margins, he explained.

In the East of England, the market was more cautious, said David Brooks of Robinson & Hall’s Ipswich office. Developers were choosy and price cautious, especially given the extra cost burden of the new Community Infrastructure Levy – a general charge to fund new infrastructure in the area being developed.

“House prices are also so much lower than they were, and land values are reflecting that. However, location is everything and values vary considerably.”

Only a few best plots would be worth what they were a few years ago, Mr Brooks said. Typically, single plot values were £60,000-80,000, down from £100,000-150,000, and larger sites with planning consent £500-600,000/acre.

In Scotland, Richard Thompson of Smiths Gore’s Edinburgh office reported good developer interest for the right sites, particularly in the central belt and Aberdeen.

But where a fully-serviced, well-located site suitable for 50-100 houses might have fetched more than £900,000 a developable acre five years ago, landowners could expect about £600,000 today. Values typically ranged from £300,000-700,000 a developable acre.

“Developers are looking for multiple smaller sites with as few constraints as possible,” he said. “The value of every site is very dependent on the cost of opening it up, but is ultimately constrained by the fact that house sales have slowed by 50% since the economic downturn.

“The strategic land market is beginning to work again with option fees being paid, but landowners should take advice on promoting land to secure the best return.”

Landowners had to be alert to take advantage of all opportunities, said Mr Rutledge. Obtaining planning consent was a major but often very costly step. One way to mitigate cost was an option agreement, where the developer funded the process and a deal was then struck for the land.

However, he believed a promotion agreement was better. Here, a promoter funded the planning consent so the land could be put up for sale on the open market once it was obtained, improving the chance of realising its true value.

Landowners could boost their chances of attracting a developer by being flexible and perhaps by forming a joint venture, supplying the land and sharing in the build profits, said Mr Rutledge. A similar approach could also help unlock option agreements that had been struck when land prices were higher.

Rupert Clark of Smiths Gore’s Petworth office said the current market required a more intelligent, structured approach to selling than when it was at its prime.

“It is becoming increasingly important to match market demand, rather than sell all at one go. By using the promotion route and selling smaller parcels off over time, landowners will realise better values than they would by putting all the land into an option agreement.”

Developers were more risk-averse than at the peak of the market, he said. “They want an easily developed site with as few add-on costs as possible. Try to clear all potential obstacles before entering into a deal.”