Covid 19 impact on Plot Sales
As with any economic crisis, the property market is one of the first and one of the hardest to be hit.
Knight Frank has predicted that more than 520,000 house sales will be abandoned this year due to the coronavirus outbreak, being a 38% drop in the forecasted 2020 figures, with Rightmove reporting that it had already recorded a 40% fall in the number of homes listed for sale since 26 March 2020.
With the most recent Government announcement allowing house viewings and moves to resume, the question is now how quickly the housing market will bounce back. From first reactions, it appears that the second hand property market has been slow to resume activity but new build enquiries have increased.
Developers have also now been given the green light to return to sites and continue construction so this seems to be restoring buyer confidence that work will progress on their new build property. However undoubtedly, build programmes have already been delayed and whether supply chains will be affected remains to be seen.
A large number of developers had already returned to site prior to this latest announcement having implemented social distancing measures and so from our own experience, new build sales have continued to progress with completions remaining consistent. The level of new reservations taken has been much lower, but has not stopped completely and we are expecting the numbers to increase again in the coming weeks.
The future of plot sales however, of course hinges on the land market. Housebuilders have generally paused all new land-buying activity, stopping all discretionary land spend and new acquisitions of immediate land, focusing on preserving cash. In the short term therefore, it is likely that we will see fewer sites being brought to the market as landowners wait for clarity and hold out for land values to return to pre-lockdown levels.
It is therefore vital that where developers have active sites, that the legal framework for the plot sales is set up as a matter of priority. This will ensure that as soon as that first reservation is taken, the contract pack can be dispatched without delay and the process can proceed efficiently to maintain vital cash flow for developers.
In the medium term, land buying activity will depend on how the wider housing market recovers. If demand for residential transactions increases over the next few months, developers will feel more confident in resuming land acquisitions. If acquisitions do pick up, then we are expecting to see these facilitated by way of option agreements for the most part and conditional contracts, rather than unconditional sales.
The process of buying land and obtaining planning permission for a development is not a fast one. Therefore, unless a developer has an existing reserve of land stock, we may see a gap in the number of new homes developers are able to deliver in the coming years, due to the pause in buying activity in 2020.
What is clear is that the landscape of residential development will change. There is clearly still a market out there, with our clients reporting continued registered interest in active sites throughout lockdown. However, buyers will be well aware of the financial pressure that developers will be facing to maintain their cash flow and so we expect to see more price negotiations and increased use of buyer incentives. The emphasis on affordable housing may also become more prominent, should buyer confidence be slow to return
For any further information on preparing for plot sales or land acquisition, please contact Lauren Purdey in our Real Estate department. You can also email your query to firstname.lastname@example.org or email@example.com, call 01276 686222 or visit https://www.herrington-carmichael.com/.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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We are solicitors in Camberley, Wokingham and London. In 2019, Herrington Carmichael won ‘Property Law Firm of the Year’ at the Thames Valley Business Magazines Property Awards, ‘Best Medium Sized Business’ at the Surrey Heath Business Awards and we were named IR Global’s ‘Member of the Year’. We are ranked as a Leading Firm 2020 by Legal 500 and Alistair McArthur is ranked in Chambers 2020.