West One

Developers who think lean and green will prosper in difficult market conditions



Over the past year, we have become accustomed to a red-hot housing market, with booming demand and soaring property prices.


But, if the warning signals are correct, the good times might be over — for now, at least.

While property prices are still rising, predictions of a slump are becoming more commonplace due to a potent combination of rising interest rates, plunging consumer confidence, and runaway inflation.

Should we see a drop in prices — and that is by no means guaranteed, I should add — then GDVs will also tumble, leaving developers in a difficult position.

That, in turn, will make the UK property market less attractive to investors, particularly those based overseas. When you consider a lot of funding for short-term finance originates abroad, that becomes a problem.

In this scenario, I imagine lenders will tighten their criteria and, developers — especially those with less experience — might find their options thinning in the short-to-medium term.

But even if this comes to pass, there are things that you, as a developer, can do to bolster your own position and make yourself more creditworthy in the eyes of a lender.

Control your costs

A combination of Brexit, Coronavirus and the Ukrainian war has resulted in a sharp spike in the cost of materials and labour. Clearly that’s a problem.

Keeping your project costs down is important and can be a dealbreaker for some lenders, so it’s important to assess these as much as possible before committing to a purchase.

Not overpaying for the land also allows you to carry out the development with little worries that your profits are at risk due to any cost uncertainty.

In that same vein, it is essential to build good, long-term relationships with building merchants in order to lock in your costs where possible.

Go green

The government is pushing to make the UK’s housing market greener, with landlords mandated to make their properties more efficient from 2025.

Homes and buildings that can demonstrate high levels of energy efficiency have always commanded a premium, but that premium will surely only grow, given recent events.

For developers, that means higher profits and, potentially, the ability to offset rising materials and labour costs.

Pick the right lender

Lender competition is strong in this sector of the market, giving developers plenty of options when they come to raise finance.

However, it is perhaps now more imperative than ever to partner with an established and respected finance provider that has heightened degrees of funding certainty.

Some lenders may have less secure funding sources that have the potential to either pause or evaporate under difficult market conditions.

It goes without saying, but the last thing any developer wants is volatility in their cashflow. As such, it pays dividends to do your homework when choosing a funding partner.

That’s where an experienced broker comes in handy. Not only will they be able to help you navigate lenders’ requirements, but they will also have insight into which have the soundest funding arrangements.

Seek alternative funding

While senior lenders will be your first port of call when it comes to raising finance, it is worth looking around to see what supplementary funding sources might be available.

There is an array of local and central government funding available to cover development or infrastructure costs which you may be eligible for.

Although it is likely their criteria will be tightened, finding yourself a strong equity partner and/or mezzanine finance provider may become key when gaps need to be plugged.

Grasp opportunities

Great property developers will know that risk can never be eliminated but only mitigated — and with risk comes opportunity. And I have no doubt there will be opportunities ahead, no matter what the state of the market is.



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