Residential Developers: How has COVID-19 impacted your GDV? Are you adjusting your expectations?
There isn’t an industry in the UK that hasn’t been affected, positively or negatively, by the COVID-19 pandemic. Residential property developers are no exception. The March 2020 lockdown hit the property industry hard.
With many building projects grinding to a halt, and demand changing significantly throughout 2020, adapting to the ‘new normal’ became a priority. A changing property development industry suddenly meant development projects were no longer commanding a healthy GDV (Gross Development Value) return.
The changing demand for residential property
The good news is that the residential property market rebounded during the summer of 2020. Buyers and sellers, who had to put their house moves on hold during the first lockdown, were let out of the starting gates in May last year, and they were determined to make up ground. Couple this with the government’s announcement of the ‘holiday’ on stamp duty on properties bought for £500,000 or less, until 31st March 2021, and demand soared.
Building sites were back up and running, making up for lost time; record housing demand, up by as much as 55% in comparison to 2010, pushed up prices. But what became evident over the last year was the change in priorities for buyers. It was out with the towns and in with the countryside.
With so many people now working from home, plus the impact of two more lockdowns and tier restrictions meaning homeschooling was back on the agenda, the demand for dedicated office space, larger gardens, off-street parking and high speed internet became the top priorities.
The land market is back on track
However, the development sector has probably suffered the most due to COVID-19. Developers stopped buying land; indeed, sites coming to the market were few and far between in the spring and summer of 2020. Savills reported a 75% loss in land being acquired by developers in April 2020.
What is encouraging is that more sites are coming to the market with an increase of 29% since June last year. Housebuilders are becoming active again but are moving cautiously, despite residential demand being at an all-time high. There is a preference amongst developers for the smaller sites whereby they can build and sell quickly.
House-led developments are leading the way as developers see these as more risk-averse. In fact smaller developers are the most active, buying land for 50 units or less. This has much less impact on GDV and they are more likely to see a better return on investment.
The Savills Housing Sector Survey 2020 saw a significant drop in developer’s appetite for risk. The survey also demonstrated that many builders were focusing on their existing stock, ensuring they meet building safety and net zero carbon standards.
That said, housing associations are as active as ever, if not more so. A survey by Inside Housing revealed that the top 50 housing associations are planning on building 39,000 new homes over the next year. However, the funding from the Affordable Homes Programme 2021/2026 could have a significant impact on these plans.
Planning changes to PDRs in 2020
Due to the COVID-19 pandemic, the government announced changes in July 2020 that impacted PDRs (permitted development rights). These included:
Upward extensions — two new regulations came into effect. There was a new PDR, Class A, which allowed the construction of up to 2 storeys that created new flats on the topmost residential storey of a building that is an existing purpose-built, detached, block of flats. In addition, new upward extension PDRs were announced for existing homes and new homes above specific types of buildings.
Demolition and rebuild — a new Class ZA was added that deals with the demolition of buildings and the construction of new houses in their place. To meet the new PDR the demolished building must have been built prior to 1st January 1990, be vacant, redundant, free-standing and fall within the Class B1(a) offices, B1(b) research and development, B1(c) industrial processes, and free-standing purpose-built residential blocks of flats (C3).
As well as the planning changes, other measures were introduced to help developers and businesses adjust to the new ways of working during the pandemic:
Pavement licences — businesses serving food and drink could apply for a temporary pavement licence through a new streamlined procedure.
Construction hours — a new fast track application process was introduced to apply for a temporary variation of planning conditions relating to construction site working hours.
ime extensions — the commencement period for some unimplemented planning permissions and listed building consents were extended to allow for delays caused by COVID-19.
Remote meetings — amendments to the Coronavirus Act 2020 made it possible for local authorities to hold meetings online.
Last year major developers, including the Berkeley Group, released statements that warned of a decrease in shareholder dividends in 2020/21. COVID-19, without doubt, changed the risk factors for many developers, small and large.
With homebuyers priorities changing, as many continue to work from home; the move out of big cities to more rural areas, albeit on the outskirts of cities; the fall in demand for commercial and retail properties prompting developers to re-think the building sites; expectations have changed significantly. The COVID-19 pandemic has had impacts on the property market that are likely to continue for some time to come. Without doubt the property industry is going through a major shift; some would say about time and for the better. As developers adjust their expectations and focus on smaller, more profitable, building programmes of 50 to 100 units to reduce risk, it’ll be interesting to see how the building sector changes throughout 2021 as we come out of Lockdown 3.
Considering investing in property but don’t have the necessary funds? Now you can with Bricktrade. We offer potential property investors the opportunity to get involved in bricks and mortar investments from as little as £500. Our cutting-edge crowdfunding platform opens up great opportunities for property investment and for property developers looking to raise funds for their property development projects. Discover how Bricktrade can help you and sign up today.
Visit the Bricktrade website: https://bricktrade.co.uk/
Find us on Twitter: https://twitter.com/brick_trade?s=21
Find us on Telegram: https://t.me/bricktrade
