Now could be prime time to invest in small-scale property development
History tells us that a housing market crash usually leads to a significant upturn in fortune for some…
Crystal balls are much in demand at the moment and the property market is no exception.
As we start 2023, there are many questions to answer – such as “what will happen to house prices?”; “is now a good time to purchase a buy-to-let property?”; and “is going into development a good strategy in the current market?”
In the world of property investment, you can look back at previous economic downturns and property crashes to see the many investors and developers who took action and, as a result, made their fortunes. So, let me share a couple of options regarding property development that might be worth considering in the year ahead.
SMALL–SCALE PROPERTY DEVELOPMENT
Many smart landlords have already worked out that smaller development projects are simply the other side of the property coin and that they already have the skills for both renting out property and developing it.
Just a little bit of research will tell you that the government is desperate to encourage people to start creating new homes. However, it’s the case that every time it tries to solve the housing crisis, there is a wave of nimbyism which often prevents any meaningful progress.
Luckily, there is one relatively nimby-friendly area to consider: the conversion of the existing, unused brownfield stock that we have around the country. These old commercial buildings and shops are lying there, unoccupied and unloved, with little intrinsic value because of a lack of demand. Right now, we have more commercial building space than is needed and not enough homes, so converting one into the other is likely to be a savvy move.
You might be asking: “surely by now established developers have snapped up all these types of opportunities?” The reality is, they’re not remotely interested.
This means it’s a market that is been effectively left to the smaller developers. To help even more, the government has recently granted a plethora of permitted development rights (PDAs) that make it possible to change the use of such buildings without the need for full planning permission.
And with around four years’ worth of new homes locked up in these brownfield sites, it’s no surprise that the government is keen to encourage as many people as possible to get started in property developing.
The immediate future is uncertain.
House prices may come down as affordability declines, which then stagnates the market. Inflation will see interest rates climb and the cost of borrowing increase. On top of this, the buy-to-let market is facing an unprecedented level of taxation and regulation, which has already forced many landlords to sell up.
Rental properties will shortly be required to meet more stringent EPC ratings and, for many, the cost of upgrading them makes the whole buy-to-let venture unprofitable or unaffordable. And then there are those landlords who hold portfolios in their own name, which means when they do sell up, they’ll attract a prohibitive amount of capital gains tax due to their properties’ values increasing significantly during their ownership.
What if you were to find a way of taking control of their portfolio while ticking all the buy-to-let regulatory boxes and allowing them to sell properties over time so they could take advantage of the CGT allowance every year?
You could then acquire their tenants today and their portfolio over time, giving them a more profitable exit and you a significantly discounted means of creating an active portfolio. Is this possible? You’ll find plenty of people in the know that believe that it is. You just need to know how to do it.
More often than not, the trick is to uncover who needs a solution most and then work out a way of providing it. You are then in the enviable position of being one of a small group supplying a large number of people with something they desperately need.
And believe me, every time there’s a crisis, there’s never any shortage of people looking for an exit.
WHEN IT COMES TO PROPERTY DEVELOPMENT, DON’T BE VANILLA
Two things always tend to happen whenever there’s a recession, property crash, or some other economic crisis:
- Most people sit and do nothing
- The “vanilla” property investment strategies (the standard ones that most people employ) no longer work as well as they used to. Some no longer work at all.
For most people, vanilla is the only strategy they know. There may be a few not-quite-vanilla examples out there, but tutti frutti is entirely off most people’s menus!
This means that there are lots of people who allow extreme caution to overcome them; they freeze up, waiting for their trusted, familiar strategies to start working again. However, when these strategies eventually thaw out, the opportunities are gone.
The message for 2023? Be bold.
ABOUT THE AUTHOR
Ritchie Clapson CEng MIStructE is an established developer, author, industry commentator, and co-founder of leading property development training company propertyCEO, part of the Pin partnership.