The UK property market supports 2.5 million investors today, delivering reliable returns over the past two decades. With demand for affordable housing vastly outstripping supply, bricks-and-mortar has massive appeal for first-time developers, presenting two distinct but equally compelling inducements.
First, property development can be used to generate a reliable income. Developers who decide to hold on to their investment and rent it out can gain a steady income flow from their tenants.
Second, developers benefit from capital appreciation, with the value of their properties increasing over time. If they sell their property at a later date, either individually, or by liquidating their entire property portfolio, they will generally realise a substantial gain on their initial investment.
Property development has always been the ultimate goal of Zuneth Sattar’s property business, Xaviar Investments Limited. Property developers employ a variety of different investment strategies, depending on budget and risk tolerance.
Standard Single Occupancy Buy-to-Let
Although it is the least innovative strategy, letting to a single tenant or family is widely regarded as the safest long-term investment option, providing good yields.
With this form of property investment, monthly rental income can be used to meet finance and maintenance costs. The tenant relationship is also easier to manage and maintain, with a good chance they will stay long-term. However, there is a risk of void periods, where the property stands empty and the landlord receives no income.
Houses of Multiple Occupation
Instead of letting a property to a single family, here the developer lets out individual rooms. The more rooms a property has, the more units the landlord can let, increasing income. Houses of multiple occupation incorporate several property niches, from high end ‘boutique’ units and student lets, to properties aimed at blue collar workers.
This form of property development is more demanding than single occupancy buy-to-lets, calling for individual tenancy agreements and incurring increased management and maintenance costs. Nevertheless, houses of multiple occupation offer enhanced monthly returns, with developers continuing to receive some rental income even when the property is not fully occupied.
With buy-to-sell developments, the investor purchases and refurbishes a property, before selling it with the aim of realising a profit
This mode of property investment is apt for investors seeking larger lump-sum returns in the short-term, though the strategy’s viability is heavily reliant on market conditions.
Some property developers acquire land without any intention of building on it. Instead, they acquire planning permission before selling it on. Land that comes with planning permission is more desirable to homebuilders, increasing the land’s value.
This form of property investment is regarded as fairly high risk, since the process of applying for planning permission can take months or years to complete, with no guarantee of success. In the meantime, the developer will need to meet the finance costs of their purchase. This strategy presents significant risks, but also potentially high returns.
Some property investors buy land with the intention of building from the ground up. Acquiring a vacant plot capable of accommodating a handful of executive homes, or a small apartment block, presents exciting profit potential. However, for a first-time property developer this is an ambitious first project, with the potential gains reflecting the heightened level of risk.
Commercial to Residential Property Conversions
Commercial to residential property conversions are popular with both local and central government, particularly when the property has been standing vacant for some time. Investors are therefore less likely to face planning permission obstacles compared with other types of conversion.
Given the UK Government’s extensive efforts to increase availability of affordable housing, planning laws have been relaxed in recent years, opening up a new niche opportunity within the property market. Commercial to residential conversions are growing increasingly alluring, even for first time developers, due to their attractive profit margins.