Property Cycle - Where Are We?

Property Cycle - Where Are We?

Fortunately for some people, the cover image very much represents what London will look like today and hopefully you are enjoying the sun. For the majority of us we are more than likely sitting at our mahogany desks with ultra modern air-conditioning (Wayfair desk and £15 Argos fan).

In answer to my own question, who knows? There are many individuals that are much smarter than myself such as long serving property professionals and economists that have their own opinion on the current property market. Some believed the market was very much on the up just 12 months before the last financial crash and they were right, until thy weren't.

The news outlets tend not to publish positive articles on the economy (BREXIT, Covid-19, rising build costs, potential softening of GDV's and labour shortage). When was the last time you read an article and walked away feeling good about the market? I tend to take it all with a pinch of salt and prefer to speak directly with developers that are navigating the property market in real time (you tend to hear the current frustrations and the odd profanity which I prefer as it's real).

When listening to problems it's paramount that solutions are provided. However, on some occasions it's slightly too late to completely avoid. The idea is to share the common problems in hope that each developer can avoid these moving forward.

These are my six main points to consider in the current development market:

  1. Debt exposure. Just like lenders prefer to not have too much debt exposure with one client, I would advise every developer not to have all of their eggs in one basket with one funder. I witnessed a developer get caught out on this during the height of Covid-19. Development finance options have never been so competitive. While credit is readily available, try and utilise it
  2. Contingency. Use a 10% as a bare minimum in your initial appraisal. Avoid any unwarranted surprises when the monitoring surveyors report is produced.
  3. Professional team. A solid professional team will pay dividends in the long run. Cheap does not equal increased profit margins.
  4. Overpaying for land. Seems like a no brainer but the amount of deals I have now seen where this is exactly what has happened. Apply a high level of discipline and stick to your figures. I looked at my own scheme about four years and it's amazing how Excel can produce a profitable scheme when emotionally invested.
  5. Debt advisory. I could rewrite the Genesis Chronicles on this point. Please make sure you are actually being advised on debt and equity structures. I have included two links below elaborating on these points from previous posts: (https://bit.ly/3MXfujI / https://bit.ly/3tBNj35).
  6. Loan facilities. There have been a number of occasions where developers haven't understood what 'loan on demand' translates to. I would absolutely consider fixed facilities and fixed margins during uncertain times. It means you have clarity on your financial position.

The economy is forever changing and while the market has an element of uncertainty, it will stabilise in the future. Ultimately, homes still need to be built and home ownership or investment is still very much an aspiration in the United Kingdom attracting a global audience.

Desmond Daly

Connecting Equity to Property Developers

2 年

Chris Treadwell Thanks for this advice

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Jamie Notley

Senior Mortgage Services Sales Manager at Sequence UK Ltd - Barnard Marcus

2 年

Good read Chris! Cheers for sharing

Jack Wicks

Helping 1M vulnerable people find a safe place to live. Find out how to partner with us! We need your help! Co-Founder @socialhousinggroup

2 年

Superb advice mate ????

Absolutely spot on as usual!

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