Prop Developers - Current Climate
Discussion
I know there's a few other developers on here & am interested in their thoughts on the current uncertainty in the property market.
I have a couple of developments due to start in the next 3 months which are projected to return around 22% & 24%. Normally I would be happy to progress on these forecasts but must admit to being slightly concerned.
What kind of property do you reckon will be most affected ? The developments I have to start are more 'starter home' priced between 115k & 150k. I suspect it will be the more expensive properties which will be affected, ie 250k+.
What do you lot reckon ?
I have a couple of developments due to start in the next 3 months which are projected to return around 22% & 24%. Normally I would be happy to progress on these forecasts but must admit to being slightly concerned.
What kind of property do you reckon will be most affected ? The developments I have to start are more 'starter home' priced between 115k & 150k. I suspect it will be the more expensive properties which will be affected, ie 250k+.
What do you lot reckon ?
nah, I think if it's going to happen (which I'm not convinced) anything below £600k will get hit, with the prices at the bottom being hit first & hardest, this is where allot of repos are happening at the mo.
Saying that, even property at the top will be hit if it's not 110% desirable. I think the most desirable top end property will hold fast unless the drop is as long & hard as the 80s crash, then it's abandon ship & hello europe
someone will be along shortly & disagree with all I have said though, so wada I know
Saying that, even property at the top will be hit if it's not 110% desirable. I think the most desirable top end property will hold fast unless the drop is as long & hard as the 80s crash, then it's abandon ship & hello europe
someone will be along shortly & disagree with all I have said though, so wada I know
Hmmm.
So, if the sales falls because of 'concerns', will the BTL market pick up ?
I just can't believe the drops being forecast of up to 60%. A 10% drop possibly, or a slowdown more than likely.
In the past I've always been looking for ideally a 20% return, however would drop to 15% on larger projects. Does this mean we should be looking for say 35% returns to have a bit of comfort built in ?
On a seperate note, auction property doesn't seem to have been affected. People still paying over the odds for some bizarre sites.
So, if the sales falls because of 'concerns', will the BTL market pick up ?
I just can't believe the drops being forecast of up to 60%. A 10% drop possibly, or a slowdown more than likely.
In the past I've always been looking for ideally a 20% return, however would drop to 15% on larger projects. Does this mean we should be looking for say 35% returns to have a bit of comfort built in ?
On a seperate note, auction property doesn't seem to have been affected. People still paying over the odds for some bizarre sites.
I think the cheaper properties will be the first hit - especially in Leeds as there is an abundance of flats etc at the lower price levels. I also think buyers of cheaper homes are more sensitive to interest rate changes etc. Most agents I have spoken to have suggested that they are not struggling to sell homes at £650k to over £1million, but that the <£250k sales have slowed a bit. At the same time, a few developers have also suggetsed that the days of an 'easy' 25% margin are gone. Margins are getting tighter.
Ultimately, if you build a good quality product it will sell at a good price - its those trying to cash in by building unimaginative, high density dross in 'up and coming' (ie not very good) areas that may have some difficulty selling.
Ultimately, if you build a good quality product it will sell at a good price - its those trying to cash in by building unimaginative, high density dross in 'up and coming' (ie not very good) areas that may have some difficulty selling.
I would agree the locality will dictate your sucess however:
The BTL is going to be the first to go, interest rates are climbing and rental yields are falling due to a massive oversupply of BTL in most areas - especially in the cheaper 1 and 2 bedroom flat type market where a lot of BTL landlords bought up enitre buildings at big offplan discounts causing massive localised oversupply, ironically the biggest shortage in rental property is in the 2 million+ home counties country house market where foreign big hitters relocating from places like Russia and America want to live but htere is relatively little choice.
I would say the 1 and 2 bedroom flat market is going to be hit hard, agree with the comment that too many developers have been turning out rubbish substandard product in unimaginative developments that look like housing association blocks and charging premiums - the obsession with denisity might please planners and paper margins but a lot of buyers don't want to string themselves up to a huge mortgage for a shoebox with no parking - with a lot of BTL product getting repo'd in this sector its bound to lead to huge oversupply.
Biggest problem is mortgages, the only market for 1-2 bed starter property is the cash strapped FTB'ers buying to the hilt on max mortgages - precisely the market the banking sector has now caught a cold on. without min 15-25 percent deposits and good credit and employment histories these buyers are going to struggle to get a loan, those that can will no doubt be very choosy and negotiation hard.
If i was developing right now, i would be targetting commercial property not residential where there has been complete and utter saturation in certain sectors - where i live for example the market is awash with property for sale of all descriptions but businesses can't secure decent office space, car showrooms or retail units for love nor money.
my top development tip would be business centres and serviced offices. For example there are masses of office buildings empty letting 20K sq feet at 100K a year which is finy for megacorp inc but i was at a recent banking seminar and 80 percent of the businesses employed under 15 people or where startups - there is simply no faclities for these type of businesses these days since they closed the enterprise centres - so desirable office space for small companies with shared facilities is really missing.
Would also be nice if developers stopped whacking up the cheapest option thermal block and glass monstrosities - if you want to let a project employ a decent architect and put some inagination into your planning, i've turned down 3 speculative developer office spaces recently because the buildings were so cheap and ugly i would be ashamed to put my business name up on the door.
The BTL is going to be the first to go, interest rates are climbing and rental yields are falling due to a massive oversupply of BTL in most areas - especially in the cheaper 1 and 2 bedroom flat type market where a lot of BTL landlords bought up enitre buildings at big offplan discounts causing massive localised oversupply, ironically the biggest shortage in rental property is in the 2 million+ home counties country house market where foreign big hitters relocating from places like Russia and America want to live but htere is relatively little choice.
I would say the 1 and 2 bedroom flat market is going to be hit hard, agree with the comment that too many developers have been turning out rubbish substandard product in unimaginative developments that look like housing association blocks and charging premiums - the obsession with denisity might please planners and paper margins but a lot of buyers don't want to string themselves up to a huge mortgage for a shoebox with no parking - with a lot of BTL product getting repo'd in this sector its bound to lead to huge oversupply.
Biggest problem is mortgages, the only market for 1-2 bed starter property is the cash strapped FTB'ers buying to the hilt on max mortgages - precisely the market the banking sector has now caught a cold on. without min 15-25 percent deposits and good credit and employment histories these buyers are going to struggle to get a loan, those that can will no doubt be very choosy and negotiation hard.
If i was developing right now, i would be targetting commercial property not residential where there has been complete and utter saturation in certain sectors - where i live for example the market is awash with property for sale of all descriptions but businesses can't secure decent office space, car showrooms or retail units for love nor money.
my top development tip would be business centres and serviced offices. For example there are masses of office buildings empty letting 20K sq feet at 100K a year which is finy for megacorp inc but i was at a recent banking seminar and 80 percent of the businesses employed under 15 people or where startups - there is simply no faclities for these type of businesses these days since they closed the enterprise centres - so desirable office space for small companies with shared facilities is really missing.
Would also be nice if developers stopped whacking up the cheapest option thermal block and glass monstrosities - if you want to let a project employ a decent architect and put some inagination into your planning, i've turned down 3 speculative developer office spaces recently because the buildings were so cheap and ugly i would be ashamed to put my business name up on the door.
Hi chaps.
Used to be involved with BTL from an EA and IFA perspective, so don't dismiss my comments out of hand.
I've been out of that market for just over a year, but I would have to agree with the general trend of Lambogenie's post.
The BTL market was saturated a good few years ago, and every man and his dog thought it would be a great idea to jump on the bandwagon and bog it down even more.
As other advisers have stated in other threads, investment clients used to get upwards of 10-12% yield on their rental portfolio. Just a year ago, that figure had dropped to 5% on fairly good deals.
The trouble is, that BTL rules opened the floodgates for greedy, amateur attempts at building portfolios. Now the market is buggered with oversupply by everyone who remortgaged their house and put down a deposit on a BTL mortgage. Even worse, were the ones that were so greedy that they used personal loans and credit cards to fund their obsession with buying. Even when the yields dropped right out of the game they kept on buying.
The 'My brothers mates uncles spaniel made a fortune out of property... so therefore I can't go wrong' attitude seemed to prevail.
Therefore the market is bolloxed as far as I can see for anything 1 or 2 bed without adequate parking. There is a brand new development near me in Canterbury that can't shift the things for love nor money. A flop.
Doesn't help that they are built on a flood plain, and look like every other 'development' of recent years but thats a bit of a side issue.
I would suggest either looking into commercial development (as a small business owner now, I really struggled to find affordable office space with masses of parking) in the current climate, or maybe the higher end of the property market... maybe if you can find any hidden gems in an area that may go somewhere in 5-10 years time.
Whatever you do, buy intelligently and play the long game. There's still an awful lot of jokers about who think they can make their millions in their sleep.
Don't get dragged down by them.
Used to be involved with BTL from an EA and IFA perspective, so don't dismiss my comments out of hand.
I've been out of that market for just over a year, but I would have to agree with the general trend of Lambogenie's post.
The BTL market was saturated a good few years ago, and every man and his dog thought it would be a great idea to jump on the bandwagon and bog it down even more.
As other advisers have stated in other threads, investment clients used to get upwards of 10-12% yield on their rental portfolio. Just a year ago, that figure had dropped to 5% on fairly good deals.
The trouble is, that BTL rules opened the floodgates for greedy, amateur attempts at building portfolios. Now the market is buggered with oversupply by everyone who remortgaged their house and put down a deposit on a BTL mortgage. Even worse, were the ones that were so greedy that they used personal loans and credit cards to fund their obsession with buying. Even when the yields dropped right out of the game they kept on buying.
The 'My brothers mates uncles spaniel made a fortune out of property... so therefore I can't go wrong' attitude seemed to prevail.
Therefore the market is bolloxed as far as I can see for anything 1 or 2 bed without adequate parking. There is a brand new development near me in Canterbury that can't shift the things for love nor money. A flop.
Doesn't help that they are built on a flood plain, and look like every other 'development' of recent years but thats a bit of a side issue.
I would suggest either looking into commercial development (as a small business owner now, I really struggled to find affordable office space with masses of parking) in the current climate, or maybe the higher end of the property market... maybe if you can find any hidden gems in an area that may go somewhere in 5-10 years time.
Whatever you do, buy intelligently and play the long game. There's still an awful lot of jokers about who think they can make their millions in their sleep.
Don't get dragged down by them.
I think that it depends on what you are developing and where.
If the market does drop, which looks likely but has been predicted for ages now, then it only affects those who have to move or those who are trying to get on the ladder. But the advantage for those trying to get on the ladder is that cheaper prices mean they can afford something bigger, or a house instead of a flat.
I am not sure about the commercial market either. I looked for a freehold industrial unit for a client about 18 months ago, and couldn't find one for love nor money. Now there are 5 or 6 on the market. I'd agree finding anything with masses of parking is a nightmare, but thats due to planning policy which says that we all have to travel on foot, bicycle or public transport. The result is you need a minimum of parking spaces and the result is on developed estates you can't move for parked cars!
If the market does drop, which looks likely but has been predicted for ages now, then it only affects those who have to move or those who are trying to get on the ladder. But the advantage for those trying to get on the ladder is that cheaper prices mean they can afford something bigger, or a house instead of a flat.
I am not sure about the commercial market either. I looked for a freehold industrial unit for a client about 18 months ago, and couldn't find one for love nor money. Now there are 5 or 6 on the market. I'd agree finding anything with masses of parking is a nightmare, but thats due to planning policy which says that we all have to travel on foot, bicycle or public transport. The result is you need a minimum of parking spaces and the result is on developed estates you can't move for parked cars!
Chrisgr31 said:
...you need a minimum of parking spaces and the result is on developed estates you can't move for parked cars!
This has already changed for residential development and I think you can expect it to change for industrial/commercial in the near future. 'Manual for Streets' (the Government design guide for residential streets) makes it clear that Local Authorities should not dictate lower parking provision than the developer wishes to provide. Industrial/commercial guidance is likely to follow suit, for obvious reasons, though in any case local authorities tend to be more flexible about parking provision for businesses as it is.
There will still be pressure for locations that have 'sustainable' transport infrastructure, though.
haworthlloyd1 said:
you guys are mentioning commercial development as the way forward, BUT:
it has proved positive returns for the past 15 years - last month showing the first negative return.
the pre budget report scrapping business asset taper relief will affect commercial as if held 2 plus years now taxed 18% on CGT as opposed to the 75% reduction on 40% tax ie in effect 10% - this is why a lot of the big hitting commercial property funds are disposing of commercial property and some holding cash.
it only takes a few 'mega money' funds to start offloading and small investors will follow suit.
think property is going to flatten, but one thing you need to remember is that there are so many people jumping on the property bandwagon who don't have a clue ( i see this everyday) that prices are still being pushed up in some areas - although repossessions are now on the up as they get bitten. Once everyone starts piling in its time to get out as the profits have been made (a bit like the technology bubble in the late nineties with equities or the classic car bull run of the late eighties etc)
There was a report in the Times yesterday that Commercial Property investment is likely to take a downturn, with funds and the man on the street alike moving to other sectors. We're now into the Q4 auction season, so we'll start to see investors appetite over th next few weeks.it has proved positive returns for the past 15 years - last month showing the first negative return.
the pre budget report scrapping business asset taper relief will affect commercial as if held 2 plus years now taxed 18% on CGT as opposed to the 75% reduction on 40% tax ie in effect 10% - this is why a lot of the big hitting commercial property funds are disposing of commercial property and some holding cash.
it only takes a few 'mega money' funds to start offloading and small investors will follow suit.
think property is going to flatten, but one thing you need to remember is that there are so many people jumping on the property bandwagon who don't have a clue ( i see this everyday) that prices are still being pushed up in some areas - although repossessions are now on the up as they get bitten. Once everyone starts piling in its time to get out as the profits have been made (a bit like the technology bubble in the late nineties with equities or the classic car bull run of the late eighties etc)
With regard to resi, i would say it's a tough one. Enquiries for the big property in the SE are down considerably on previous years as the city boys prepare for lower bonuses this year, so that could see a slow down at the top end of the market.
I think though that it will be the lower end of the market that goes first. Borrowers are a lot more wary now, which quite simply, is going to make it harder for first time buyers etc to get onto the ladder. If this happens, as mentioned above, there will be a domino effect up the ladder.
With regard to BTL, i think if people have to borrow to get into it, then they'll be put off now, or find it harder to do with lenders being more cautious. I wouldn't be surprised to see a correction in the rental market in the SE either. Certainly in some areas of London.
Have a look at this site:
http://www.propertysnake.co.uk/
Seems to track falling, or discounted, prices. I have to say that where we are (Putney) property is sticking. The greedy folk who turned down my 98% offer are now desperate- I've told them quite truthfully that they missed their chance, and I'm no longer looking to move.
http://www.propertysnake.co.uk/
Seems to track falling, or discounted, prices. I have to say that where we are (Putney) property is sticking. The greedy folk who turned down my 98% offer are now desperate- I've told them quite truthfully that they missed their chance, and I'm no longer looking to move.
Hobo said:
Well, there appears to be HUGE differences in opinions & therefore I think I'll cross my fingers & progress as normal.
At the end of the day (it gets dark!!), you can't control the prevailing market conditions. All you can control is the development itself. If you make a quality product and do not suffer any delays or cock ups, you will make profit. It may not be as much as you originally planned, but it will be there. Good luck with it Mark.Gassing Station | Business | Top of Page | What's New | My Stuff