Could lack of supply kick-start a recovery in the land market?
Friday, March 5th, 2010Property investors and developers will be aware that, whilst there has been activity in the commercial property auction rooms as some investors with cash return to the commercial property market seeking yields that are more attractive than many other current investment returns, there remains understandable nervousness about acquiring development land.
However, those in the business of residential or commercial development will at some time need to return to the market, unless they leave the sector altogether. The recent slowdown in development activity has led to a lack of supply of land with planning permission for development, or that is about to obtain planning permission for development. This could in the short term increase the value of developable land, especially with the unknown quantities of a general election and community infrastructure levy around the corner.
The key elements in any development project are to undertake a thorough viability assessment and ascertain that the numbers work through. Funding from certain commercial lenders is starting to become available in principle – but in general only to established developers who can meet lenders’ revised criteria. These hurdles have less to do with loan to value calculations, and more to do with stress-testing the borrower’s ability to service the debt, and its current business acumen. If funding is available, it might be on the basis of a phased development, and will be more tightly controlled than before, to include regular site visits by the lender or its agents.
We may see pockets of activity in the country whilst there is a lack of supply, such as Olympic or other need specific schemes, but until funding becomes more readily available there is unlikely to be a significant increase in development land market activity in the short term.
By James Griffiths - Partner and Head of Business Law Group
For more information, you can email James - lawyers@ashtongraham.co.uk
or visit www.ashtongraham.co.uk
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