Yesterday, the new Communities Minister Greg Clark announced that he intends to change the planning classification of gardens to tackle the so-called problem of ‘garden grabbing’. As a result, gardens will no longer be considered “Brownfield land”  (i.e. land that has been previously developed).

This is something that has been on Mr Clark’s agenda for sometime. In fact, the BBC covered a story way back in 2006 when he tried to introduce a Protect Private Gardens Bill.  You can read about it here.

It’s worth noting that Mr Clark is the MP for Tunbridge Wells. As a much sought after area of the South East, Tunbridge Wells is an area where land is at a premium and where housing demand is historically strong… so is  one of the rare areas where garden grabbing has been a bit of a problem… however how much of a problem is it in the rest of the UK?

Is “garden grabbing” really the problem it’s made out to be?

In my recent blog post on the topic of garden grabbing, I mentioned that planners already have powers to stop this practice. But the fact remains, that despite media and government spin, garden grabbing isn’t a major problem for much of the UK.

How do I know?

Well, let’s just take a look at the recent independent research that the previous Government commissioned to investigate the issue of inappropriate developments within back gardens.

The review found that: “Of the 127 [councils] who responded, less than half (50 councils) considered it an issue in their areas. Of those who reported a problem, only 5 per cent (7 councils) had specific, local policies in place.”

So how will the new legislation affect us developers and land finders?

Regardless of whether garden grabbing is a problem or not (even though over 50% of councils don’t actually think that it is!), it appears that gardens have now been reclassified in the Government’s new Planning Policy Statement 3 (PPS3) which you can read here.

So what kind of effect will this have on us developers and land finders?

Well, overall, pretty limited I would say. Though I think the impact will differ around the country. For example, earlier today I looked back at the deals I’ve done in recent years… and, actually, I can only find one such ‘garden land’ deal that would’ve been affected by this reclassification.

All my other deals have been Brownfield sites used for other purposes, so as such, they wouldn’t have been affected by the policy change.  These included an MOT garage and petrol station, a tyre and exhaust garage, a public house, a farm house and barns, a former Church, the site of a lodge that had been land filled, a haulage depot, a van sales yard… to name but a few!

All of these were sourced off market and none of them were gardens.

What about my current ‘garden site’ deals?

Having said that, I have just agreed a price on three garden sites and am ready to submit planning on one of them this week.  So will the new legislation affect my deals? Probably not…

The fact is, there are many different kinds of “garden-type developments”. Some will be more suitable than others, and ultimately, as with all developments, it’s going to depend on what you propose to build on the land… and how it sits within the specific characteristics of that locality.

So I will still continue to look at these opportunities for now, because I think that even when the policy does change it will be much more applicable to certain geographical areas – such as the South East – and also specific areas within each town.

For example, in my hometown of Bolton, it is well known that Lostock and Heaton are the most affluent wards where demand for large houses has been most keen for many years.

In these areas, the local planners have already severely restricted the practice of developing in gardens – as well as the demolition of a large property sitting in a big plot and replacing it with a higher density development.  So I can see the change in policy will only help to “shore up” the council’s defence against the practice.

However, in other areas of Bolton I would expect less resistance, providing that the scheme was in-keeping with planning regulations and in-keeping with the local neighbourhood…

The main thing to ask yourself with any development is this: Does it sit well within its surroundings?

Let me show you an example…

Below is a “back garden” type of site that I looked at recently. The fact is, these have always been tricky when it comes to getting planning…

I wanted to demolish the existing pair of large semi detached houses in the centre of an acre plot.  However, even with existing planning laws, the planners where able to resist the scheme as they argued it wasn’t in keeping with the design policies of their Unitary Development Plan (UDP).

The planners were looking at the proposal in its locality, not the wider area. As annoying as it is, to some degree I could see their point!

Now compare that to the plot below. This is more of an infill garden plot…

Here, we have a pair of semi-detached houses. One of them has a large garden that is over grown and not used.  Here I have done a deal with the owner and I intend to submit planning for a single detached house.  This opportunity is a natural infill and won’t alter the character of the area.

So as you can see, these are two completely different examples of garden-type opportunities that I believe will be considered differently by the planners.  Both would be profitable if acquired at the right price.

Below is another example that “makes sense” from a planning point of view as it is a natural infill.

So how can we protect ourselves against a sudden change in policy?

I’m not sure about how long it will take for the policy change to take place, though it appears to be immediately enforceable if local councils are minded to do so. However, when considering your developments it’s crucial that you carry out thorough due diligence as usual.

To be on the safe side, it might be wise to stick to more appropriate, less controversial garden types schemes like the ones shown above.  Stay away from back land type development, as they are often fraught with difficulties.  Also, make sure you check your proposals with the local planning office before delving too deep into a deal!  You may have to look at their policy more carefully at the outset.

Don’t forget, of course, that there are thousands of other Brownfield opportunities out there too! You most certainly don’t need to stick to garden sites to make money in this game. Though they are (or have been) a great place to start.

We will just have to wait and see how the policy emerges. However, I suspect that it will be locally driven so will vary considerably around the UK. Plus, much will depend on the development scheme that you are proposing – just as it does now.

In short, always ensure that your proposed developments are in-keeping with both the neighbourhood and the local planning regulations. In this respect, nothing much has changed. There are still plenty of prime opportunities out there just waiting to be discovered…

And if you find that “garden grabbing” becomes more restricted in your area, then it can only serve to increase demand yet further for other types of Brownfield site, leading to lucrative opportunities for land finders and developers alike!

After the recent slump in property prices, headline figures suggest that house values are once again on the up. The latest figures from Nationwide reported that house prices rose by 1% in April, and have increased by over 10% in the past 12 months, while the Halifax has stated that prices are 7% higher than last year.

Plus, the Royal Institution of Chartered Surveyors has predicted that the housing market will experience a post-election boost with housing prices increasing over the summer.

Sounds good on the surface, right?

Well you’d certainly think so! However, in my experience, lenders seem reluctant to pass on the good cheer. Low mortgage valuations are still proving to be a big problem for many people.

So why are low valuations such a problem?

When assessing for finance, some mortgage lenders have been valuing properties by up to 20% below market value.  So say you’ve found a great BTL opportunity on the market for £200,000.  The lender then values it at 160K. This leaves you having to find a bigger deposit, negotiating a lower price… or simply missing out on the opportunity all together.  And, it’s not just BTL investors who are being hit. The problem also affects private home-buyers and especially those trying to remortgage…

So what can you do about a low valuation?

Firstly, make sure that the lender carries out a physical inspection of your property, rather than simply relying on a “desktop” appraisal. If they still come back to you with a low valuation, you can try appealing against the decision and show your lender evidence of a few similar properties in the area that have sold at the right price. However, this isn’t always easy… in a market where few properties are changing hands, you may struggle to gather enough evidence.

That doesn’t mean you have to miss out though…

If you’ve sourced a great BTL opportunity that’s been down-valued in this way, and you can’t persuade the valuer to change his opinion then it really comes down to one thing:

Do you think it’s a good deal or not?

At the end of the day, if your due diligence has shown that the property is good at the price, with great potential, then you may have to be brave and trust your judgement. That’s assuming you have the capital to invest to cover the extra deposit shortfall.

These are far from normal times and 12 months from now, with more confidence in the market, the same deal could be seen in a much different light.

Bear in mind that these low valuations are being given by some over cautious lenders to provide them with an extra buffer of protection on the deal. So, I prefer to judge each property on its own merits and ask myself whether it’s a good deal or not.  If it is, I’m likely to be happy with it, regardless of what a surveyor may think at that point in time. Let’s face it, BTL is a long-term investment strategy so I’m more interested in the value of the property in a decade or so’s time, not what it’s worth at the bottom of the property crash.

So, if after carrying out your due diligence you decide to press ahead, you can take the mortgage offered by the lender and make up the shortfall yourself or through mezzanine finance.

What other options are available?

Obviously, there are lots of lenders out there – even in the current market – so it can pay to shop around to see if you can get a better valuation – and finance deal – elsewhere.

A lot of investors rely on a development finance broker who knows which lenders are less likely to undervalue. They should have access to a wide network of specialist finance lenders and financiers and be able to trawl through all the relevant products to find you the very best deal.

A good broker will not only save you time and effort but – perhaps even more importantly – they’ll also be able to provide you with good value for money, getting you a deal that will pay for their services many times over.

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So remember, just because some lenders are providing low valuations, doesn’t mean you have to put up with it or miss out on profitable BTL opportunities – you still have plenty of options!

It’s not very often that you’ll catch me agreeing with Prince Charles’s views on architecture… however, listening to his address to councillors and planners in Edinburgh recently, he echoed something I’ve believed for many years.

Essentially, he called on housing developers to consider whether they would want to set up home in the properties they build.

This a basic rule of thumb I’ve always applied to my own developments, and encourage other developers to carefully consider.

“Would you want to live there?”

When you think about it, it’s not a bad test on the quality of a proposed development.  After all, if the developer would want to live there, then it’s pretty reasonable to assume that other people will too.  If you apply this principal to your development schemes – and even your BTL properties – then you stand a much better chance of shifting the houses quickly when they come to market.

But it’s about more than just cash flow. Often, developers can lose sight of the fact that they are building so much more than housing developments or housing estates… they are actually contributing to, or even creating, communities.

That’s why taking a broader, more holistic, approach to developing, taking into consideration not only the bricks and mortar, but the surrounding neighbourhood environment and the socio-economic aspect of a development can result in something altogether more rewarding.

I’m constantly hammering home to my Developing Profits students the fact that good development planning is essential – it makes the development more appealing for everyone involved…

That means it’s good for the neighbourhood… and good for profits too!

Over the years I must have spoken to many hundreds of buy-to-let investors. The vast majority of them own a small portfolio of properties and seem quite content to get by each month on a few hundred pounds of “positive cash flow”.

They boast to me about how many properties they own and the value of their portfolio… and seem to ignore the fact that, after finance and maintenance costs, they’re making very little regular income… if any!

Now don’t get me wrong. BTL is a fantastic investment strategy. But most people only get to enjoy the fruits of their labour many years down the line. Hopefully your portfolio will allow you to enjoy a long and carefree retirement… but what about today? Does your monthly BTL income really deliver the standard of living and financial freedom you deserve?

Well, what would you say if I offered you the opportunity to supplement your income by at least £50,000 per year? What if I also told you that, as a BTL investor, you already possess many of the skills required to generate an additional FIVE or SIX figure annual income? And what if I mentioned that you could generate this income around your existing commitments, relying on other people to do most of the “hard graft” on your behalf?

At this point you’re probably expecting me to introduce you to some new and far fetched “passive income generating system”… another one of those ridiculous get rich quick schemes. Well, you’d be wrong.

I’m talking about new build developing… Basically, securing some land and building something new on it.

“But what on earth do I know about property developing?… I’m not made of money you know!” I hear you cry.

Surprisingly, developing for profit is strikingly similar to BTL investing… just on a larger scale. You already possess many of the skills you will need to become a successful property developer.

Using the methods I’ve honed over the last decade, you don’t need ANY construction knowledge and, to get started, you needn’t invest any more capital than a typical BTL project.

You see, just like a BTL investor, the job of a property developer is really that of a facilitator. They source the opportunity, organise finance, structure the deal and concentrate on sales and marketing. We leave all the specialist tasks and “dirty work” to other people… solicitors, finance brokers, builders / construction companies etc etc.

One big advantage of new build developing is that there are no nasty surprises. You’re working with a blank canvass so once you’re out of the ground you know exactly what you are dealing with. Plus, I always negotiate a fixed price contract with a single main contractor so my developments are always delivered on time and on budget.

Despite completing many successful development projects, I honestly wouldn’t be able to tell you how to lay one brick on top of another. That said, it’s always useful to have a broad understanding of the construction process so that you’re able to manage it effectively, however this knowledge is easily learned. And to help you on your way, you may just find this free download useful…

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As the year begins to draw to a close, some very positive signs are emerging that would suggest confidence among the major housing developers is starting to return. For the first time in the last couple of years, there’s talk of major new land acquisitions.

During the latter half of 2009 there seems to have been a slow, yet steady, month-by-month recovery in house prices. This has lead to a wider sense of confidence that is spreading to the major developers…

For example, I read today that Barratt Developments announced a 30% increase in reservations per site. In fact, they’ve indicated that they’re once again in the market for new land acquisitions, proving they believe the worst is now behind us. Meanwhile, house builder Persimmon has just announced they’ve got a very healthy order book of £500 million in sales already confirmed for 2010.

This sense of confidence is certainly supported by activity at our land agency website, www.landlounge.com. We’ve noticed a significant surge in the demand for good quality development land over the last few months from developers large and small.

The fact that the larger house builders are now looking to source new sites should act as a really positive sign for us smaller developers, refurbishers and land finders. I’ve certainly taken the hint and have already committed to develop 18 new houses during 2010. I’ll let you know how I get on.

I’ve mentioned before that I’m about to embark on a small development project of two semi-detached houses. Well, my solicitor has almost completed due diligence and we’re almost ready to complete purchase of the land.

I’ve agreed to buy the small site in Bolton with the intention of turning a £70,000 or £80,000 profit. The land already benefits from detailed planning consent, however I decided to amend the floorplans of the two houses to provide a more attractive internal layout. Unfortunately this has resulted in the extra cost and hassle of a new planning application but I’m sure the changes I’ve made will make the properties much more desirable. I’ve just found out that the revised plans have been passed by the local planning authority. So we’re all set!

The land was on the market at £99,950 but I’ve managed to negotiate the purchase price down to £55,000. I don’t believe that in the current climate the site was worth anything like £99,950 but as I’ve managed to secure the site for nearly half that value I reckon I’ve got myself a very good deal.

Crucially the site is fully remediated and ready to go, so all I have to consider are the construction costs. If you’ve read my previous blog posts you won’t be surprised to learn that I’m going to employ a main contractor to complete all the construction work under a fixed price contract. The build will take six months, so I’m going to schedule completion for next spring which will coincide with the beginning of the 2010 ‘buying season’ and should give the market chance to improve a little further (fingers crossed!).

My original ‘back of envelope’ figures weren’t too far wide of the mark. I’ve now firmed up the budget:

Funding for the scheme has changed since I first considered the deal. I originally had a lender lined up who was prepared to provide 70% of GDV which at £320,000 would have provided us with funding of £224,000. As we’ve built a 30% profit margin into the scheme, a 70% loan would have meant we didn’t have to inject much (if any) of our own capital. The down side, however, was the very high interest costs (around 18% per annum).

I’ve opted for an alternative product from another lender which provides funding up to a maximum of 50% of GDV – in this instance, £160,000. This deal offers a much cheaper interest rate at 9% per annum. We’ve therefore taken on a JV partner to fund the shortfall. Although our partner will receive a percentage of the profits, we get to develop the scheme quickly with very little risk. The loan to value on the finished houses will be just 50% (ish!).

I wish I had the benefit of a crystal ball to tell me how much interest – and money! – the properties will attract once the development is completed. My predicted value of £160k per house is based on sales of similar properties in the area but trying to predict GDV (gross development value) is difficult enough at the best of times. In the current climate it’s harder than ever.

However, before the bank will grant funding, their surveyor will have to confirm that he agrees with my GDV figures. If nothing else, this process gives me the benefit of another pair of expert eyes double checking my figures and provides a little extra reassurance before I commit to the deal.

I thought I’d managed to pre-sell one of the houses which would have made the venture even more of a no-brainer. Unfortunately, due to personal circumstances, the buyer can no longer wait six months before moving house. So it’s worth our while to go that extra mile to improve the chances of a quick sale, especially in the current climate. The longer the houses are on the market, the more it will cost us in finance charges. So I use a range of tactics to increase saleability, such as…

• Price the homes keenly: As we’ve built a good margin into the deal, we can afford to price the properties competitively. I’d rather accept a few thousand pounds less for the properties, sell them quickly and release capital for our next deal, than have them hanging around costing extra £££ in interest.
• Include ‘free’ white goods: A full set of white goods – washer/dryer, dishwasher, fridge/freezer, oven, hob and extractor – can be bought and installed for around £1,500. I’ve included this cost in the budget. In my experience, a kitchen full of brand new white goods has a very high perceived value in the mind of prospective purchasers. It can really make your property stand out against those of your competitors.
• Kitchen accessories: You’d be surprised how a few accessories can smarten the appearance of a kitchen. It adds to the wow factor and doesn’t cost a great deal.
• High quality internal specification: I usually install high quality internal joinery. It’s amazing how much difference solid wood doors and well crafted ironmongery can have on a property. The larger house builders tend to charge extra for fully tiled bathrooms. But it’s possible to buy good quality, expensive looking tiles for as little as £8 per metre. So it needn’t cost a fortune to tile the whole room but the end result is well worth it.
• Branded bathroom suites: Branded sanitary ware adds value but doesn’t have to cost the earth. Alternatively, install a cheaper suite but add more expensive taps. This really can make a difference to the look.
• Fitted carpets: It will only cost around £1,100 to fully carpet and underlay each of the semi-detached houses. In my experience, most people put a high perceived value on a fully carpeted house.
• Recessed lights in bathrooms and kitchen: recessed lights are cheap to install but look great.
• Tiled kitchen floor: tiles are much more durable than vinyl and give a much better finish.
• Blinds and curtains: window dressings make a house much more saleable, but I’d normally only install blinds and curtains in a show home.
• Small patio: you may be surprised to learn that most of the larger developers don’t install any form of patio area at the rear of their homes. It’s normal to flag a pathway around a home so it doesn’t cost much more to add a patio which helps buyers to picture themselves enjoying their new outdoor space.

I’ve negotiated a really keen price with my main contractor, so I can probably afford to include many of the items I’ve listed above. However, as always, I’ve taken a long hard look at the build spec and I’ve managed to find a few areas where I can cut back on costs. The biggest saving relates to the boundary around the rear garden of the properties. The original planning consent specified a solid brick wall which would cost around £13,000 in labour and materials. By replacing the brick wall with a high quality timber fence (not one of those horrible concrete / timber waney lap efforts!) I will be able to save £11,000 without much loss in perceived value.

The main contractor I’ve got lined up for the project has completed several projects for me in the past. They know the standard of finish I require and will work directly with my architect, structural engineer and monitoring surveyor (working on behalf of the funder) to complete the project with minimal intervention from me. So now that I’ve negotiated to buy the land, secured the revised planning consent and applied for funding, my involvement should be limited to a monthly site meeting. I also tend to get involved in selecting kitchens, tiles, bathrooms and carpets but only because I enjoy this part of the process so much. If I get too tied up with other projects, I’ll delegate the work to an extremely competitive interior design company who’ve helped me out in the past.

The fixed price build contract dictates not only the build cost and specification but also the build term. My contractor has agreed to a detailed build program of six months with penalty clauses for delays. I always include late completion penalties to protect myself against increased finance costs but I have little grounds for concern… my contractor hasn’t been so much as a day late on any of my previous projects.

As soon as construction work begins, I’ll appoint a local estate agent to help market the properties. I’ve already commissioned some CGI’s to help with this process… you never know, we might even be able to achieve sales off-plan.

I’d like to think that the properties will be considered very good value for money when compared to what’s being offered by our competitors. Thankfully, due to the deal I’ve struck with the land price, we’ve already built a good margin into the scheme and can offer extra incentives such as deposit contributions if necessary. Even so, the scheme should return a healthy profit.

Hopefully we’ll make £80,000+ profit within around 10 months. But if the market proves to be tougher than we expected and we only walk away with £50,000 then the project will still deliver a great return for our time and effort. Thanks to my fantastic team, I can leave all the hard work to other people and concentrate on other deals.

I’ll keep you posted as to how we get on.

For some time now, I’ve been getting itchy feet. I keep contemplating taking the plunge back into new build residential projects, but like many others out there I’ve been reluctant to jump too soon.

Whilst development funding is available – I’ve managed to find a source of 100% funding deals – it isn’t as cheap as it was a couple of years ago and I certainly don’t want to be left holding a load of unsold houses at a silly rate of interest.

However, we recently agreed to purchase a site for just two houses not far from my home in Bolton. I’m confident it will be turn out to be a nice little earner. If all goes well we should walk away with around £70,000 - £80,000.

I’ve secured funding at 100% but need to sell the houses as soon as they’re complete to avoid suffering expensive interest costs. My intention therefore is to price the houses very keenly and complete them in time for spring next year.

I wasn’t happy with the existing planning consent as the internal layout of the houses didn’t really work (Sarah Beeny eat your heart out!). I’ve just applied to amend the planning which should improve the saleability no end. Unfortunately, because I want to add an extra dormer window into the roof, the planners will insist on a resubmission rather than a working amendment but I’m confident it’s worth the extra cost and hassle.

My method of new build development involves very little work by me – no more than 2 or 3 hours per month from start to finish. So the return on my time from a small project like this is significant.

I intend to run a diary of the deal as soon as it’s under contract and funding terms have been agreed.

Watch this space!

After watching Bank of England Governor Mervin King on last night’s news, it’s still clear that no one really knows how long or deep this recession will prove to be. His comments are completely at odds with that of our clueless Chancellor Alistair Darling. King’s opinion that “there are pretty solid reasons for supposing that there will be recovery next year, but also pretty solid reasons for questioning if that will be sustained” is far gloomier than the predictions made by Darling in his recent budget.

Personally, I consider King’s more conservative view as the most likely outcome. Having said that, here at LandLounge Towers we’ve definitely seen a significant increase in activity from both land buyers and landowners in recent weeks. Perhaps a small sign of increased confidence in the market?

Many of the developers I speak with say they’re now looking for sites once again, although they admit they’re being far more “choosy” than in the past. The lack of sensible development funding is still their main gripe which, combined with a severely restricted mortgage market, is severely hampering recovery. Most agree that there is a small but steady increase in demand from home buyers.

How long will this situation continue? Who knows? Only last week, one particularly successful developer told me that his bank had previously funded seven successful and highly profitable developments over an eight year period. Their response to his latest request for funding… no problem, as long as he was prepared to profit share!

Opportunities in face of adversity: Joint Ventures

As a result of the on-going funding crisis, developers and landowners have been forced to find new ways to do business. One solution which is growing in popularity is Joint Venturing.

For those land owners fortunate enough to have little or no borrowings against their land, a joint venture with a suitable developer provides a real opportunity to achieve returns significantly higher than the current land value.

But it’s not just landowners who benefit. With a joint venture, the developer no longer has to find funds to cover the land purchase and in a market where sales are likely to be slow, this can result in significant finance cost savings. Lenders tend to be far more receptive to JVs because the loan to value ratio is far lower… as is the risk.

There are various ways to structure a JV deal but by way of a fairly typical example, LandLounge recently brokered a JV deal involving a residential site in North West England. The landowner had originally been offered £900,000 at the peak of the market but for reasons beyond his control wasn’t able to sell at the time. Current offers were around the £600,000 mark which understandably the owner was reluctant to accept.

LandLounge were able to negotiate a Joint Venture deal with a local developer whereby the parties established a 50/50 split agreement. The landowner put his land into the deal at an agreed price of £700,000. The developer undertook to build out the development on a fixed price contract. All other costs were fixed. So the only significant variable is the length of time it will take to sell the houses and the impact this will have on the amount of interest payable on the loan.

On completion, the landowner will earn £1m and the developer £300,000. The bank will be repaid first, then the landowner will receive his £700,000. Thereafter the profits will be shared 50/50.

It’s not hard to see why this sort of deal is becoming far more commonplace. The landowner will achieve a figure far in excess of what his land was worth even at the peak of the market. Meanwhile the developer gets to develop a site in a difficult market with significantly less risk. It’s a win-win situation.

There are countless other ways to structure a JV deal depending upon the characteristics of the site in question. Another recent deal involved a site with consent for detached houses. We brokered a similar deal to the one above but in this instance, rather than putting the entire site into the deal from the outset, the landowner released plots individually as they were developed and sold.

Landowners take note… LandLounge have a long list of developers actively searching for JV deals. If you can establish a JV agreement, you may have to wait a little longer for your money but in this market I’m sure you will agree it’s a small price to pay. If you have a site which may be of interest to our developer contacts, let us know.

Likewise, if you’re a developer looking for JV opportunities, please get in touch so we can add you to our contact list.