Spotlight: The Value of Placemaking

The Value of Placemaking
 
Legacy scenario: the importance of timing

13 October 2016, by Lucy Greenwood

Early investment raises land value but also increases development risk

 

Meeting the demand for quality housing

A key feature highlighted by our modelling is that investment in place releases the potential for higher sales rates and sales values. This is particularly the case in areas of high demand where buyers can be drawn from strong markets nearby.

Therefore, the uplift in sales values can only be achieved if there is investment in place to make it more appealing. The sooner the investment is made, the sooner the uplift in sales values can be achieved which is reflected in the land value. Conversely, investing later decreases the potential.

Our model shows that for the legacy scenario the land value decreases by 26% if the majority of the extra investment is made 40% of the way through the build out rather than at the start.

Risk is greater

Investing more upfront however, increases the peak debt. In our model the peak debt is 56% greater if the majority of the investment is made upfront rather than later in the build. The ability to accommodate this level of debt is necessary to achieve the higher land values discussed above.

FIGURE 1

Earlier investment means greater land value

 
Figure 1

NB: Based on the assumptions for the legacy scenario with 50% additional investment and absorption rate of 180 homes per year when bulk of investment made

Source: Savills Research

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Key Contacts

Susan Emmett

Susan Emmett

Director
Residential Research

Savills Margaret Street

+44 (0) 203 107 5460

 

Lucy Greenwood

Lucy Greenwood

Associate
Residential Research and Consultancy

Savills Margaret Street

+44 (0) 20 7016 3882