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Could Land Banking Review Actually Be Good For Developers?

Housebuilders did not find much joy in Chancellor Philip Hammond’s recent comments on housing, and the share prices of several developers slumped in the wake of the Autumn Statement.  

The Chancellor did not mention any updates on the Help to Buy scheme, which is currently set to expire in 2021. Help to Buy has been helping to drive and sustain housing demand.  An initiative to reduce stamp duty for first time buyers was regarded as more of a benefit for estate agents than housebuilders. 

What really caused the market to stir was discussion of a land banking review, with developers having been frequently accused of holding onto land with planning permission in order to realise a greater profit. 

While this move was primarily seen as a negative thing, Deutsche Bank analysts took the position that the opposite was likely to be the case. 

It appears as if land promoters will be the ones under genuine pressure to release sites they do not intend to develop, which could make land more affordable for householders to purchase. 

A research note commented that four reviews in the past 15 years all supported the view of the larger housebuilders that they are building out all land deemed implementable. Analysts stated their belief that the land banking review could instead galvanise local authorities to speed up the planning process as well as increase the supply of land available to bigger housebuilders as land promoters begin to sell their land more actively. 

 

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Land promoters, which retain over half of all sites with detailed planning, are likely to be put under pressure to make their sites available within a reasonable time frame. Analysts therefore believe that housebuilders will be able to buy up land at a similar or even better margin. 

It is expected that the land banking review could make an additional supply of land available for housebuilders to buy, and it is this fact that should underscore the ongoing flow of strong margin land that currently benefits housebuilders. 

Analysts added that the post-Budget share price weakness could be seen as an opportunity to buy and would especially favour those stocks with smaller land banks, which could benefit from an even more profitable land market. 

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