When pundits talk about Britain’s entrepreneurial boom, the property development market is often forgotten. And yet look around the UK today and it quickly becomes apparent that development projects – from the smallest to the largest – are playing a huge part in driving continued economic prosperity. Not only are they providing places to live and work, but they are also creating jobs and generating wealth, even in the face of economic uncertainty. Yes, as things stand, there are signs that growth in the sector is slowing but the longer term prospects are good and we are likely to see continued strong levels of property investment in the years ahead.
It would be wrong to be too bullish about the prospects for property developers. No business sector is immune to unexpected shocks, nor indeed to the natural ups and downs of the economic cycle.
And there is a degree of circumspection among investors at the moment. Witness a report published at the beginning of this year by the British Property Federation. Based on a poll of members, it found that the number of “property leaders” intending to increase investment on developments had fallen from 62% in 2018 to 41% in 2019.
It’s a significant drop but not a surprising one. We are living through an unprecedented period of protracted economic uncertainty. Leaving aside global issues such as China/US trade and sluggish growth in parts of Europe, a three-year negotiation over Britain’s departure from the European Union has, as yet, failed to find a resolution. In fact, the economy as a whole has held up remarkably well, but there is natural caution around future investment plans.
There is light at the end of the tunnel. BPF (British Property Federation) members – investors and developers – believe that Brexit will have a negative impact on property investment over the next twelve months or so, but they think the long-term outlook is much more positive. In other words, property will ride the storm.
Finding Investment Now
But what does the prospect of a short-term reduction in property development investment mean for entrepreneurs who see an opportunity today or tomorrow, rather than in a year’s time?
The truth is that the fundamentals of the property market haven’t changed, particularly in the residential sector. It’s a simple equation. Allowing for a certain amount of regional variation, people need homes and there is not enough supply to fulfill demand. This creates opportunities for a range of property projects, including the conversion of commercial buildings to residential use, buy (and refurbish) to let, build to let, and build to sell.
The recent experience of The Route – Finance suggests that despite economic uncertainty – Brexit-related or otherwise – there is still a huge amount of entrepreneurial activity in the property development sector. And importantly, there is a strong pipeline of opportunities.
Timing Is Everything
There is, however, a challenge. For entrepreneurs working in the sector, the opportunities that arise are often linked to a set of circumstances that include a narrow timeframe. For instance, if a commercial building becomes available for conversion, an entrepreneur must be able to act quickly to raise any capital that is necessary to begin a project.
So any caution on the part of investors – such as banks or specialist lenders – has the potential to dampen activity.
It is vital, therefore, that developers with viable business plans have access to a ready pool of capital.
The Route – Finance’s Private Debt Platform is playing its part in supplying that capital. Set up to provide High Net Worth Individuals, institutions and family offices a means to lend directly to SMEs and entrepreneurs, the Route’s Private Debt Platform has carved out a particular niche in the property sector.
For developers, Private Debt Plaform provides a means to borrow substantial sums – around £1.5m is the average – over the relatively short periods required to bring property projects to completion. This has proved attractive to investors who are keen to lend to ventures that don’t keep their capital tied up for long periods of time.
The key to the success of the Private Debt Platform has been the experience of The Route’s team in assessing the viability of projects and carrying out comprehensive due diligence on applicant businesses. This ensures that the risks are minimised.
But there is a bigger picture here. The Route’s ability to attract investors demonstrates that property remains a sound opportunity. That’s true in today’s uncertain climate and it will be true in a year’s time. There is demand for new properties and any investments are underpinned by the value of the property itself.
Property will ride out the storm but the key to the continued vibrancy of the sector over the next few months is to ensure that sources of finance are available for good projects when required.
To find out more about the Private Debt Platform, please call: 020 3141 9040