This question comes up a lot, the definitive answer is in the HMRC pension manual…
Property converted or adapted as residential property
The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.
Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling.
Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling.
In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.
Essentially the question to be answered is: would a person normally live in that dwelling?
The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued.
A property that is sold before the development or conversion is substantially completed never becomes residential property.