Where Do Land Developers Get the Best Return on Investment in England?
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WHERE DO LAND DEVELOPERS GET THE BEST RETURN ON INVESTMENT IN ENGLAND? DEVELOPER REPORT CONTENTS 1 2 3 4 Introduction Methodology The Cost of Land Land Prices: A Regional Analysis 5 6 7 8 Comparing House Prices: Return on Return on House Prices A Regional Analysis Investment Investment: A Regional Analysis 3 labcwarranty.co.uk INTRODUCTION The supply and availability of suitable land is often cited as a key constraint of the house building industry. Delivering profitable developments relies not only on finding suitable land but land available at the right price. Typically, the value of land is linked to The greater the difference between the potential sales value of developments. the residual land value and the Gross The residual value of the land is assessed Development Value, the greater the by considering the potential sales value of opportunity for profit. In other words, the development (the Gross Development the developer can improve their odds Value), minus the development costs. The on their bet on house prices. remaining difference gives the residual land value, with an allowance for profit. With this in mind, LABC Warranty With the price of land intrinsically linked has conducted a study into which areas to the potential house prices, purchasing of England has the greatest variance land has been described by Savills as a between land prices and potential sales leveraged bet on house prices. values. Whilst this ignores any variances in construction costs it shows an indicator of the potential for positive ROI for developers in different regions of England. 4 labcwarranty.co.uk METHODOLOGY The Cost Comparing Return on of Land House Prices Investment Land prices in this study Using a data Return on investment show the median price scraping tool, prices for has been calculated by for each county and 3-bedroom new builds finding the percentage overall region. Land in each county/region of increase between the included in the research England were collated. average/median cost has granted planning Due to availability, the of land for each county permission and is a minimum number of and the average/median single plot. Using Plot houses analysed in each cost of a 3-bedroom Browser, prices for every county was 100 and new build. In this case, plot of land that met the the maximum 500. return on investment requirements for each This dataset enabled the refers to the gross yield county was collated average and median cost rather than net yield as before determining the of a property of this type additional costings for average and median to be determined. Please building the property cost. Please note that in note that in this report, and associated legal fees this report, comparisons comparisons are made have not be subtracted. are made based on the based on the median This does not consider median figure rather figure rather than the the regional differences than the average. average. in build cost. 5 labcwarranty.co.uk THE COST OF LAND LABC Warranty collated prices of land up for sale with planning permission to build one property in order to compare the median cost of purchase for counties across England. The most expensive counties to purchase On the other end of the spectrum is land for property development is Surrey South Yorkshire. In this part of England, and Hertfordshire, with the median price the median cost for purchasing land with setting a developer back by a sizeable planning permission will set developers £450,000. The second most expensive back by just £70,000. Greater Manchester locations to buy land are Hampshire closely follows South Yorkshire, with and Berkshire, with the median price of land priced at reasonable £73,499.50. £375,000. They were closely followed by Bedfordshire also offers affordable land East Sussex, whereby the median cost for property developers, with a median for land purchase is £350,000. price of £75,000. 6 labcwarranty.co.uk AVERAGE LAND PRICES Most Expensive Least Expensive 1 2 3 4 5 Surrey Hertfordshire Berkshire Hampshire East Sussex £450,000.00 £450,000.00 £375,000.00 £375,000.00 £350,000.00 6 7 8 9 10 Buckinghamshire Kent West Sussex Essex Oxfordshire £337,499.50 £305,000.00 £300,000.00 £300,000.00 £249,999.00 1 2 3 4 5 South Yorkshire Greater Bedfordshire Derbyshire County Durham £70,000.00 Manchester £75,000.00 £80,000.00 £82,475.00 £73,499.50 6 7 8 9 10 Cumbria Tyne and Wear East Yorkshire West Yorkshire Warwickshire £85,000.00 £92,475.00 £92,499.50 £99,999.50 £100,000.00 7 labcwarranty.co.uk LAND PRICES: A REGIONAL ANALYSIS Overall, South East England is home to the most expensive land prices in the country. The median cost across all counties in the South East region is £356,249.75; much higher than other areas. East of England is the second most expensive region, however, at £215,832.33 it is still considerably cheaper than purchasing land in the South East. Yorkshire is the cheapest region In North East England, it is also possible to purchase land by a considerable to buy land with planning permission amount. To put things into perspective, for less than £100,000. In this region if a property developer chose to purchase of England, land with permission for a land in South East England, they would single property has a median price of most likely pay £356,249.75 for one plot just £99,983. East Midlands follows as space. If they decided to buy land in the third most cost-effective region to Yorkshire however, it would be possible purchase land, at a reasonable £120,000. to buy four times the amount of land and still have change of £1562.57. 8 labcwarranty.co.uk REGIONAL ANALYSIS OF LAND PRICES 1. South East England £356,249.75 2. East of England £215,832.33 3. South West England £171,904.76 4. West Midlands £134,999.60 5. East Midlands £120,000.00 6. North West England £110,999.00 7. North East England £99,983.33 7 8. Yorkshire £90,624.75 6 8 5 4 2 1 3 9 labcwarranty.co.uk COMPARING HOUSE PRICES It’s no secret that house prices fluctuate depending on location. It’s an aspect of property development that needs to be carefully considered before purchasing land. If property prices and/or demand is low in the area, it means that making a significant return on your investment may be, in theory, more difficult. Surrey has the highest new build South Yorkshire is the least expensive house prices in our study, with a county to purchase land, and new build 3-bedroom new build costing £625,000. house prices in the area reflect this. Hertfordshire follows closely behind with The median cost associated with buying the median price of purchase £590,000. a 3-bedroom new build is an affordable With a price tag of £470,000, buying a £150,000. The price of purchasing a new 3-bedroom new build in Berkshire is build property of the same size in County also an expensive option. Durham is also cost effective if you’re a homebuyer at £169,000. Merseyside emerges as the third most cheapest area to purchase a house, with the median cost at a modest £171,995. 10 labcwarranty.co.uk AVERAGE HOUSE PRICES FOR A 3 BED SEMI-DETACHED Most Expensive Least Expensive 1 2 3 4 5 Surrey Hertfordshire Berkshire East Sussex West Sussex £625,000.00 £590,000.00 £470,000.00 £417,500.00 £400,000.00 6 7 8 9 10 Buckinghamshire Kent Essex Bristol Hampshire £395,000.00 £394,500.00 £389,997.50 £381,497.50 £380,000.00 1 2 3 4 5 South Yorkshire County Durham Merseyside Tyne and Wear Lincolnshire £150,000 £169,000 £171,995 £174,995 £180,000 6 7 8 9 10 Lancashire Cheshire West Yorkshire Northumberland Derbyshire £181,995 £189,998 £191,995 £195,000 £199,995 11 labcwarranty.co.uk HOUSE PRICES: A REGIONAL ANALYSIS The relationship between house prices and land value can be seen in the fact the regions are ranked in the same order for both measures. The North East and North West are In contrast, the most expensive the most affordable regions when it 3-bedroom new build is likely to be comes to purchasing a new build property. found in South East England. Buyers The median price on the market for a in this area can expect to pay a median 3-bedroom property of this type in price of £470,000. In the East of England, the North East is £179,665 and £189,116 the median cost is lower at £366,623. in the North West. However, it is still much higher compared to regions in the north of England. Our data research supports the assumption that house prices steadily increase the further south you are in the country. 12 labcwarranty.co.uk REGIONAL ANALYSIS OF HOUSE PRICES 1. South East England £397,500.00 2. East of England £366,622.92 3. South West England £305,000.00 4. West Midlands £254,643.50 5. East Midlands £209,373.75 6. North West England £189,115.63 7. North East England £179,665.00 7 8. Yorkshire £197,735.00 6 8 5 4 2 1 3 13 labcwarranty.co.uk RETURN ON INVESTMENT In recent years especially, the housing Homebuilders must be aware that location market has been notoriously volatile. can drastically influence the potential As demonstrated with our research for a positive return on investment.