wordstothewise

Cautious Optimism

As we end 2011 I confess to having mixed feelings about the property development sector. On one hand we have enjoyed a tremendous 2011 and look set to achieve a record year with business levels in excess even of those pre credit crunch.  New business has been so healthy that last year’s totals were surpassed in just the first six months of the year and we expect to post annual growth of one hundred per cent. This is certainly due in part to our continuing commitment to fund property development projects in a market where others either rationed their business or stopped altogether.

So, with a record year almost under our belts and our ongoing commitment to the property development sector why the mixed feelings? The success of any development project hangs on the ability for a developer to be able to sell their finished projects, not only in a reasonable timescale but also at a price that realises an acceptable profit.

In forming our own view of the market we read a number of reports and statistics. Savills provide one of the most interesting.  Their Q4 2011 Focus undertook the difficult task of forecasting the next five years of the housing market. Whether you agree with it or not it is a fascinating but sobering read. There is very little to be excited about in 2012 with negative house price growth predicted across all regions with an overall fall in house prices across the UK of 2%. The picture begins to look a little more encouraging from 2013 with some regions posting positive, albeit modest, growth figures.

Within these figures is the view that the north and south divide will continue to be reflected in house prices.  At the end of 5 years Savills expect house prices in the North East, North West, Yorks & Humber and Scotland to be up to 3% below current levels.  On the other hand they forecast prices in the South East 15% above the current levels.  Of course these regional averages mask a whole range of local factors and no doubt there will be pockets all over the country where for various reasons the market will do better than anticipated.  The canny developer will be searching these out.

So with a challenging 2012 expected in terms of house prices and market activity what are the key issues facing developers and their professional advisers? There is little doubt that attention to the basic principles will be important.  Firstly, location, there must be a continuing focus on finding quality sites, ensuring that the location is not over-supplied by doing local research and producing the right product.  In order not to be caught out by falling prices, and remembering that forecasts can prove optimistic, appraisals need to be realistic and build in a good level of profit margin remembering that these days the risks are on the downside.

So, what of the coming year? Based on this year’s result we are entitled to have some optimism for 2013 but we should be mindful of predictions of low house price growth and so cautious optimism is probably the order of the day. Completing quickly and selling quickly will continue to be key as well as purchasing land at the right price.

Recipe for success in 2012

  • Look for quality sites
  • Factor in the expectation that prices will fall
  • Ensure location is not over supplied
  • Focus on appropriate quality of finishes
  • Ensure you purchase land at the right price
  • Develop a flexible marketing strategy


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