Property development is hardly a new kind of property opportunity but in recent years it has perhaps been overlooked by other property opportunities like buy to let. Now, however, could be a good time to reconsider property development. In this post we will look at exactly why and what some of the basics of good property development are.
What is property development exactly?
Property development sounds complicated but in essence is fairly simple. It is developing one type of property into another, different type of property.
To take that a bit further, property development usually involves developing a type of property which is less in demand into one which is more in demand. More particularly it is about developing a less valuable type of property into a more valuable type of property. In this way, it is a way of creating value in property.
Why might now be a good time to get into property development?
Although property development can be a viable opportunity in any type of property market it can be particularly attractive in cool property markets. Many commentators suggest this is where the property market is at the moment.
In recent years any property investment has made money partly if not mainly as a result of rising values in the property market. Today that isn’t all that likely. But property is a way to generate profit in property even when the market isn’t rising, or even potentially when the market is falling, because of the value added by the development.
In fact, the prospects for property development may be better in a falling market than a rising one, as there are likely to be more good-value buying opportunities.
There are other factors that might make the market development-positive at the moment. Demand levels for some types of property (especially residential) continue to be high. Finance is still readily available and, even after interest rate rises, relatively cheap compared to historical rates.
What are the ways to get into property development?
Property development offers a wide range of different opportunities, but there are two main areas:
* Developing new property. Building a new property from scratch, either on a greenfield or brownfield site.
This is generally a more complex area of development. It can require more capital, be more difficult to finance and is more complex from a planning permission point of view.
* Developing existing property. Taking one type of property and converting it into another type of property, perhaps alongside renovation. This can in some ways be a more attractive type of property development at the moment.
With this type of development finance is more readily available. It may afford an opportunity to generate value through buy, refurbish and refinance projects. Planning permission may be less complex. It may be possible to take advantage of permitted development rights and develop a project without the need to obtain planning permission.
Commercial to residential development
Returning to the fundamental concepts of property developing – developing low demand property into higher demand property and creating value – commercial to residential property developments are one type of development that could offer very good potential in the current market.
In the current property market, there is lots of lower value, unwanted commercial property. There is also a severe shortage of residential property in most parts of the country, and values of this remain strong. In many cases these types of projects can also help with regeneration of an area, and may also benefit indirectly from ‘levelling up’ investment.
* Surplus retail property can be developed into residential property. Or a mixed development with residential development over an existing retail property.
* Surplus and outdated office property can be developed into residential property, such as apartments or HMO type accommodation.
* Other commercial to residential developments. Surplus property such as public houses, residential homes, social clubs, petrol filling stations and similar can be converted into residential property. Or alternatively demolished and rebuilt as residential.
Points to consider when developing property
* Location, location, location. Finding a site which has potential to be developed into a higher value use. Deciding what the optimum type of development for that site might be.
* Valuation. Obtaining an accurate valuation of the site as it stands and a projected gross development value (GDV). Estimating the likely project costs including finance over the anticipated timescale of the project.
* Development finance. Finding the best/most cost effective way to raise the money and, if necessary, refinance on completion. May well call for specialist financial advice.
* Planning consents. Researching what planning permission will or will not be required. Liaising with the local planning department. May require specialist planning advice.
* Site acquisition. Sourcing development properties or sites both on market and off market. Acquiring the site at the best price.
* Planning an exit route to the development. Either resale to an owner/occupier, an investor, or retain as a long term investment.