SIGNS OF RENEWED CONFIDENCE AND MOVEMENT IN RESIDENTIAL LAND MARKET: IS RECOVERY FINALLY UNDERWAY?
04 October 2013Recent published analysis from practically all quarters points to an increase in activity, mortgage lending, and importantly pricing across the residential sector. The latest RICS/Ulster Bank housing market survey reports a positive price balance for only the second time since July 2007, indicating that average house prices are now rising rather than falling. The Council of Mortgage Lenders has also reported a marked increase in activity by first-time buyers with loans up 36% compared to the same period last year with the average amount borrowed also increasing.
Given the positive signs, it is perhaps unsurprising that the residential land market appears to be following suit rapidly. Increased developer confidence buoyed by the tangible evidence of demand for new housing stock has fuelled appetite for opportunities in established residential locations. The reason for the increase in activity is simple; the traditional house building model works once again. In the good old days of the ‘boom’, such sound logic wasn’t necessary as a new breed of developer speculators emerged and simply gambled on growth.
Osborne King’s post-boom return to the auction market now clearly shows that residential land is the most popular sector in this forum, accounting for approximately 28% of all lots offered in our seven auctions since September 2011. Our most recent sale in June 2013 saw a total of nine development land lots offered, all of which sold for a cumulative total approximately 1.5 times that of the published maximum reserves.
Private treaty sales provide equally positive reading with ‘ready to go’ opportunities most sought after by local builders/developers. Even high-density brown field opportunities acquired at the height of the market are starting to move provided the pricing is reflective of much more modest development. In its simplest form, this could be a large detached bungalow on a mature site with planning permission obtained at the height of the market for six or eight apartments now becoming two well-proportioned semi-detached villas.
However, pricing remains crucially important particularly in rural areas and those locations detached from established urban centres. Demand for opportunities in traditional residential areas in the Greater Belfast area continues to be most competitive with local builders coming to the fore, but in reduced numbers elsewhere. It is also fair to say that the majority of operators in this area remain cash purchasers, which naturally limits demand beyond a ceiling of around £500,000.
Mainstream finance for development remains practically non-existent, and thus developers are expecting to fund such building projects from their own pockets dramatically affecting demand for larger opportunities.
NAMA has recently confirmed funding for the 95-unit Millmount scheme in Dundonald, indicating that further large-scale projects will be considered by the agency on a case-by-case basis. Whilst such support must be welcomed much more is required from conventional lending sources as confidence returns to the market in order to assist a sustainable recovery throughout the sector.