John Waddicker: Developing into 2015

John Waddicker: Developing into 2015

I'm sure all those involved in property development finance would agree that 2014 was a very busy year .


I'm sure all those involved in property development finance would agree that 2014 was a very busy year, and the enquiries and applications continue to come through at a good rate.

There has been consistent activity not only from the well-established lenders, but also from those looking to take more of a share in the buoyant market, in addition to new entrants from the bridging sector. There are now more lenders populating each ‘tier’ of lending, from the institutional lenders straight through to private investors, which ultimately gives more options for the developer.

At the start of the year, the rising cost of construction was noted as one of the biggest challenges for the industry. Earlier reports confirmed that material and labour costs would increase (with a greater increase in London than elsewhere), given a short-supply of both as the pace picked up and demand outstripped depleted supplies. This also highlighted the importance of the supply chain being solvent and able to deliver. Specialist contractors are now reported to be very busy, and the increase in lead-times for materials has to be managed more closely.

We saw some slight movements in the cost of money, with a number of lenders offering different facility ‘structures’ in an attempt to offer flexibility or to set themselves apart from the rest. This included the reduction and also the removal altogether of exit fees, albeit usually at the cost of a slightly higher interest rate.

Joint Ventures were a regular topic, both from developers looking to exploit more opportunities, and from lenders keen to back the right deal profile. Understandably some lenders’ policy does not allow them to entertain such circumstances, but for those who can, JV deals can make sense, particularly if the developer is an existing client.

Permitted Development Rights cases have been in abundance, of all shapes and sizes, countrywide. This type of development has also been favourable to the bridging sector given the building/structure exists and works can be completed in a predictable timeframe. The expectation is that PDR proposals might show signs of slowing given they are time-limited to be completed by the end of May 2016, so any sizeable scheme will start to become increasingly awkward for a lender as the year progresses.

So what can we expect for this year? The inevitable base-rate rise appears to be on the horizon, and demand for consented sites is on the increase, with competition reported to be ‘fierce’ in established areas of the country, potentially driving up land prices which squeezes margins, but I’m sure that won’t dampen the spirits of the seasoned developer given the turbulent landscape of the last few years.

John Waddicker
Director at Positive Commercial Finance

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