Property Developers provide homes for the open market, private and social rental. Many people aspire to become developers and indeed many try, some succeed whilst most do not. Enthusiasm, positivity, focus and hard work are simply not enough to ensure that projects are delivered successfully. Knowledge and experience are essential to the process.  As a family we have been providing homes since the 1950s and have a great understanding of the risks and how best to mitigate them. This article (subsequent parts in future issues) covers the essentials that you should be aware of and primarily focuses on new build, however the content is applicable to those wanting to embark on conversion projects too.

What is property development?
If you’ve changed a property in some way and added value then it’s fair to say you are a property developer, but it’s clear that there are different levels, each with different levels of complexity.

1. Refurbishment – Taking an existing dwelling and improving it through structural or cosmetic building works.
2. Re-development – Extending, converting and/or changing the use of an existing building into single or multiple dwellings, obtaining the relevant consent in the process.
3. House Building – Creating new dwellings from the ground up building on previously developed, under-developed or undeveloped land.

There are seven steps in the property development project cycle:
1. Sourcing
2. Appraisals
3. Securing the deal
4. Planning
5. Funding
6. The Build
7. Exit

Risk and reward
Management of risk is at the heart of any successful venture. The most common types of risk associated with running a housebuilding business are;
1. Market risk
2. Financial risk
3. Technical risk

An example of market risk would be getting planning permission and building units that the market is already saturated with, such as blocks of apartments. Many inexperienced developers fall into this trap as an apartment scheme will often produce the greatest number of units, with many associating more units with more profit.

An example of financial risk would be paying too much for the site in the first place, thus severely reducing your profit, or in some cases wiping it out entirely causing big financial loses. Obviously, significant sums of money are required to buy, build and exit new build development projects. This can be a mix of your own funds, investor funds and lending from a development funder, so it’s not just your finances at risk yet you (as the lead developer) are ultimately responsible.

An example of technical risk would be spending time and money on the pursuit of planning permission with no planning strategy in place, leaving the end result to chance. You need to plan for each foreseeable outcome ahead of time to ensure you know what steps to take in any situation.