Average prices for residential development land in prime central London continued to edge downward in the second quarter of 2016.
Land values fell 6.9% between April and June, resulting in their third consecutive quarter drop, according to new data released by Knight Frank on Wednesday. Prices have fallen 9.4% year over year.
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Ian Marris, head of residential development at Knight Frank, said there were several reasons for the trend, including a slight softening in home values as a consequence of higher taxes on high-end property, which is also making sales more difficult to negotiate.
Developers also face inflation of construction costs, which have increased notably over the last two years, according to the report. Higher construction costs, explained Knight Frank, are altering the viability of some sites and, in some cases, trimming land costs.
All this has increased developers’ perception of risk and made them more conservative when it comes to the value of their finished product, Mr. Marris told Mansion Global.
Nevertheless, he said, the underlying direction of the London market is upward, and the decline in land prices should be seen as "a short-term adjustment."
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Prime Central London development land prices are at levels last seen in mid-2014, due to unchanged market fundamentals "characterized by an imbalance between supply and demand and ultra-low mortgage rates," according to the report.
Urban brownfield (land previously used for industrial purposes and some commercial uses), on the other hand, is in strong demand, and while its prices went down by 1.1% in the second quarter, they are still up 9.1% year-over-year.