Over the next ten years where will the money be for property investors?
Over the last decade or so, buy to let has become the method of choice for many property investors. However, in a climate where buy to let seems to be becoming less attractive by the month, now might be a very good time to consider what the next big property opportunity might be.
Could the next property opportunity be, not buy to let, but property development? Here are some reasons why Insider thinks property development could be the next property investment opportunity investors should consider:
* Development offers an opportunity to add value – in a way that buy to let doesn’t necessarily do.
* Demand for new residential property is only going one way – up – thanks to the rising population on top of an existing shortage of supply. As a property developer you have a stake in the potentially very lucrative business of creating more supply.
* Finance costs and availability. Traditionally, finance for property development has been harder to obtain. Whilst still not easy it is probably easier than it has ever been, with more options available to borrowers.
Property developers can now access a whole host of crowdfunding opportunities to help them fund their developments.
Plus, even with likely impending interest rate rises, finance costs for development projects are likely to stay low for the foreseeable future – especially bearing in mind that development projects tend to be shorter term investments.
* Construction costs generally rise at a slower rate than the rise in property prices. In other words, even where labour and materials costs are rising, the property being constructed will rise in value faster.
* A buoyant economy should stimulate demand and create more ‘up and coming’ areas. Up and coming areas afford investors an opportunity to benefit from the general development of an area, as well as from the development of their project.
* Government policy is currently positive in favour of new development. For example, policies such as planning simplification, planning in principle and green belt use are developer friendly.
* There may be tax advantages to exploit. Development can still allow the property investor to access a range of tax advantages. Advantages which, which seem to be under threat in the buy to let sector. (Professional advice advisable in order to access tax advantages.)
* There are lots of properties available for development in most areas. While residential stock at good prices is in short supply in most places redundant industrial and commercial premises, for example, are plentiful in many locations.
* Property for development is, in many cases, still cheap to buy into and still offers good value.
* Newly developed property usually sells or lets at a premium.
* Development offers good prospects for capital appreciation. Compare this to buy to let, where prospects for capital appreciation in most areas are now quite modest. Well planned development offers the shrewd developer many opportunities to add value in the short term well in excess of any likely capital appreciation due to property price rises.
* Developers still enjoy a broadly positive image, and their activities are welcomed and even incentivised in some cases. Contrast this with buy to let investors who are increasingly being blamed (wrongly of course) for the nation’s property woes.
* Property development gives you options – always desirable in any investment.
You can sell your completed development project for a capital gain or, alternatively, add it to your portfolio as a buy to let. Developing a property as a buy to let can help you exploit the supply-demand equation – and also help you achieve impressive yields compared to simply buying and letting a property as is.
We hope you found this Property Insider article useful. While you’re here, why not look at what else Property Insider can do for property professionals and investors.