05 Sep Subdued Property Markets – Developer Survival
According to the Royal Chartered Institute of Surveyors (RICS), demand for residential property continues to decline. The number of homes that have come onto the residential market has increased gradually.
This, however, has been credited to the offloading of some buy-to-let properties. Although supply is not significantly out of balance with demand, the subtle changes in the market over the recent years show that the residential property markets remain subdued. Despite the increase in stock levels with estate agents, the supply of new properties on the market remains at an all-time low.
Property Markets – Price Growth, But Demand Declines
It really doesn’t make sense to develop new properties when demand is dropping. Or does it? With demand for rental properties holding their own and a drop in landlord instruction, rents are going up.
Consequently, even a relatively short-term stint as a landlord will pay off. This is true despite the loss in tax breaks for individuals. Developers that have residential property that has become hard to shift because of the lull in the property markets could consider becoming landlords for a short period until the market develops some buoyancy. As a limited company, they will still enjoy many of the tax breaks available.
Timing is the Key
The capacity to time the upsurge in new demand often determines the success of a property developer. Growth and shrinkage in property markets ebb and flow with economic cycles. Those developers that have been in the business for the long game understand this and are unlikely to consider slow-moving development stock as a heavy burden.
If standing stock that is providing some return, waiting for the next upturn means they will have it ready when demand returns. In the interim, the property that they have on the books could be used as collateral to develop commercial spaces which are new in demand. This is especially true for shared workspaces and warehousing.
It isn’t expected that the property markets are going to pick up toward the end of 2018 either. More likely is the possibility that they will remain subdued as we approach Brexit D-day early next year. The uncertainty of how the economy is going to perform post-Brexit is definitely one of the factors that add to the subdued property market.
Flexibility and Diversity
Ultimately, survival is the flexibility to diversify as rapid market changes take place. For some developers, sitting on unsold stock may mean that they worry about not having the cash flow to start a new project even in a different property market.
When this happens, it’s time to go to an experienced broker such as Sam Hoban at Belgravia Property Finance. Sam has extensive knowledge and experience. He possesses an understanding of how to source financially different products to resolve different situations. Specialist brokers like him have the resources to deal with most property deals.