What's the mood among property developers?

Expert examines the positive shift within the property development market

What's the mood among property developers?

Green shoots of positivity are starting to emerge within the property development sector, David Alcock (pictured), managing director at Blend, has claimed.

“As development finance lenders, we often find ourselves capturing the very early, almost undetectable, signs of a move in the property development market or a shift in developer’s sentiment,” he said.

Green shoots of positivity

Alcock said the past two to three weeks have been interesting as green shoots of positivity have started returning, while headlines remain fixated on the latest interest rate rise and its potential impact on prices.

“One sign of this increased positivity, gone almost unnoticed amid the interest rate increase, is that two mortgage lenders have now announced that they will be offering 100% loan-to-value (LTV) mortgages on first-time buyer purchases,” he said.

The return to deposit free mortgages, Alcock said, is a clear sign that lenders see confidence in future price and rates movement.

Furthermore, Alcock said that the developers and brokers he has spoken to have seen a pickup in activity; he added that the team at Blend has also seen a significant pick up in new enquiries over the past two weeks.

“A large regional housebuilder client of mine has been sitting on site with planning for 35 units in Oxfordshire for c.18 months waiting for some market stability to return before commencing construction; they break ground next month,” Alcock said.

He believes the reality is that the latest rate increase was already priced in by a market that expects UK interest rates to peak at, or close, to 5% within the next six months, before falling sharply to around 4.5% by the first quarter of 2024.

In Alcock’s opinion, what has fuelled this newfound confidence and bout of positivity in the market is the combination of three factors.

“These factors are a steadying of build costs, more confidence in future price and rates movement, and the observation that new-build properties in the right location still seem to be carrying a premium of 5% to 10% above second-hand stock, providing the product is good,” Alcock said.

This latter point, he said, reinforces the rationale for building good quality, design-led homes in strong regional towns and cities across the UK.

Opportunities remain despite challenges

According to the Centre for Cities, compared to the average European country, Britain today has a 4.3 million backlog of homes that are missing from the national housing market as they were never built.

Alcock said that this housing deficit would take at least half a century to fill even if the government’s now-defunct target to build 300,000 homes a year is reached.

“Tackling the problem sooner would require 442,000 homes every year over the next 25 years, or 654,000 every year over the next decade in England alone,” he said.

The stakes are high, Alcock said, buy opportunities remain for property developers who are now starting to feel positive and upbeat again.

“One such opportunity is prospective homebuyers’ appetite for new-build homes, which, according to the Land Registry, are selling at a premium of £65,000 compared with existing housing stock; the new-build premium has increased by £5,000 during the past year,” Alcock said.

Do you believe the outlook of the property development market is a positive one? Let us know in the comment section below.