Property developers: The battle of supply and demand

With clashing house price data from Nationwide and Halifax coming out in the last week, are we finally beginning to see the end of Covid’s legacy? One may argue that given our times of austerity, a softening of rising prices is opening up an opportunity for property developers.

Ongoing supply & demand challenges

The past 18 months have seen clients continue to fight the supply-demand battle, but if we look to demand specifically, data from trading economics shows mortgage approvals fell for the 5th month in a row. Not ideal news at face value. However, our residential mortgage team has dealt with more enquiries in the past 3 months than the previous quarter, so the market is clearly still busy. There’s no denying that house buying remains strong , despite increased house prices. ?The stock available is being snapped up quickly. Research conducted by Knight Frank even found that there has been a slight uptick in demand for urban flatted schemes as commuters return to office working . Data from GLA Housing and Land found London had a slight lag behind the regional property markets when it came to purchasing suggesting buyers may be starting to fall as a result of inflation and economic and political uncertainty, but the market imbalance and upwards pressure on prices continues remain due to low numbers of properties on the market. So long as property developers are continuing to build, early indications show house buyers will be chewing your hand off to snap up the housing developments.

Whilst data surrounding supply is much harder to quantify, anecdotal data from the ONS back in November 2021 shows that supply is continuing to drop due to global supply chain shortages induced by Covid. However, new nutrient neutrality rules are not only slowing down delivery, but also impacting development progression in some parts of the country.

So where does that leave property developers?

An article listed on Sky News found that RICS view the?possibility of prices continuing to rise, due to supply falling faster than demand.?If this is the case, property prices may remain robust. This could also lead to lower land values and vendors having less power to command high selling prices therefore increasing the appeal of building property.

Yes, there may be less demand as rate rises its tipping point, however experts are expecting this growth trajectory to slow . Are we witnessing first-hand the signs of stagflation confirmation? The reduced demand but rising prices from lower supply.

In that environment it would still make sense to build, and profits may well be retained. Our specialist lending department has recently assisted some of our developer clients to complete on several multi million pound projects, so we are seeing this demand in action.

To learn more about development finance and the options available to you, contact our team via [email protected], or call 020 3903 9875.