This article is mainly structured for developers and potential investors that are providing new residential units through conversion and new build. Many of the points also relate to those that are refurbing and/or adding value through extending individual homes. Property development is a largely speculative activity with most of us being traders and historically only holding property when the market was/is slow. This is changing with many developers now building for the private rented sector through build to rent schemes. This is most definitely an expanding part of the sector and for many of us a great way to potentially mitigate the financial risk of development…more about that later.

Be in no doubt: property development is an extremely risky business with both new and more experienced developers going out of business, even in strong markets. The numbers rise dramatically during softer markets which result from major political or economic changes and the repeating economic cycles. We have ourselves lost many £’000s in tough markets and fortunately then made more in strong markets. We did not make money by being clever and lose money by being unlucky. Understanding what, how and when to buy and sell takes an element of economic understanding, courage and the ability to minimise risk whilst maximising margins.

Liquidation statistics are often 12 months or more out of date with many developers and developments subject to lengthy processes of land and project ‘step-in’ with fixed charge receivers. This leads to a false sense of the reality of current performance within the sector.  We often find developers, investors and funders taking a very optimistic view over their projects and investments, listening to and sometimes promoting an unrealistic picture.  With so much information available to us and more sector experts and commentators than ever before, it’s not difficult to find articles, stats and opinion that’ll support every view regardless of the reality. Hindsight is as they say a wonderful thing and many developers like me look back and say “if only”.  

The market for homes is not simply driven by supply and demand, which makes property unlike many other markets and seemingly unpredictable. In order to protect ourselves from whatever the future may bring, it is the past we should look at, anything else is someone’s opinion based often on their wishes or agenda, sometimes described as a ‘gut feeling’.  

For some it’s believed that there is an 18-year cycle in the property sector with boom, decline, bust, growth, mid-term peak, small decline then growth back to boom. There are plenty of statistics that support this thinking however it’s not something that we should rely on as it has only happened three times and even that is debated by some experts. House prices doubling approx. every ten years is another ‘belief’ that can be supported if you are selective with the statistics. Regardless of cycle frequencies it is clear that they do not prevent many developers, both new and experienced, from judging the market poorly.