No fall in values has been recorded for two successive quarters, with prices staying constant since December 2016. As a result, year on year, prime central London land prices are down just 3.5% - the lowest annual drop since Q1 2016.
Before the start of 2017, values had been falling consistently since the second half of 2015. The biggest fall happened ahead of the EU referendum in the three months to June 2016, when values plunged by 6.9%.
Justin Gaze, joint head of residential development at Knight Frank, says the flattening of prices over the past two quarters suggests the market has adjusted to the double whammy of increased stamp duty and tougher affordable housing policies.
“It has taken time for the market to absorb stamp duty and changes in affordable housing policies, but we are starting to come out of that absorption period,” he says.
Gaze adds that there are fewer sites on sale at the moment due to the perceived fall-off in the prime market, but that those that are available are attracting strong bids.
A good site that is properly priced could easily achieve a premium above asking - Justin Gaze, Knight Frank
“There are fewer opportunities in the market now, but that means people are prepared to pay more because they won’t have as much competition when it comes to selling the completed development in two or three years’ time,” he says.
“A good site that is properly priced could easily achieve a premium above asking.”
However, Gaze concedes that the London market is unlikely to see a dramatic increase in values any time soon.
Meanwhile, the average urban development land price - a figure that takes into account the value of sites in key UK cities including London - increased by 1.2% in Q2 2017 and is up 6.3% year on year.
This increase was largely due to significant growth in Birmingham, Manchester and Leeds, according to Knight Frank.
By comparison, greenfield land prices in England are relatively subdued, falling by 0.3% in Q2. Construction and planning costs have proved a barrier to price growth. However, prices were up by 0.7% on June 2016 - the first time the annual change in land prices for greenfield sites has been in positive territory since December 2014.
Across both greenfield and brownfield sites throughout the UK, Grainne Gilmore, head of UK residential research at Knight Frank, says: “There is evidence of strong demand for development land in areas where the housing need is greatest.”
So long as this remains the case, land prices are likely to remain firm.