The UK property market is constantly changing, and it's crucial for industry professionals to stay ahead of the curve. One sector that has seen its fair share of ups and downs is the land market. In a recent conversation with Sebastian, a director of Kalmars, a multifaceted estate agency, we gained valuable insights into the current state of the land market and how developers are navigating through the challenges.
Watch the full video here and see below for a summary of our discussion
Kalmars has over 56 years of experience in the industry and has seen all sorts of market conditions come and go. Sebastian pointed out that the current state of the development market is not unlike previous downturns. The key to success lies in adapting quickly, seeking out opportunities, and finding the best way to navigate the market.
One of the first challenges Sebastian highlighted is the need to adjust mindsets. Many developers cling to old perspectives and fail to see the potential opportunities available. To overcome this hurdle, it's important to explore new models, consider different use classes, and adapt appraisal strategies to fit the current market conditions.
Of course, any development project comes with its fair share of challenges, especially when it comes to financial feasibility. Sebastian acknowledged that making the figures work can be tough, particularly in uncertain times. However, he emphasised that developers who are effective at finding creative solutions and remain optimistic are more likely to come out ahead.
When it comes to finding those creative solutions, Sebastian emphasized the importance of looking beyond the obvious. It's crucial to consider alternative approaches such as joint venture structures, balancing equity and debt, and exploring different models that can make a site more viable and profitable. By engaging with potential purchasers and clients, Kalmars has found great success in uncovering angles and opportunities that others may not have considered.
"One of the factors that weighs heavily on the land market is interest rates."
One of the factors that weighs heavily on the land market is interest rates. Sebastian stressed that developers must carefully consider the impact of interest rates on their projects. Without the right structure and approach, interest rates can easily cripple an opportunity. To mitigate this risk, developers should focus on finding ways to cash flow, manage debt, and structure deals to benefit both the landowner and the purchaser.
Interestingly, Sebastian mentioned that build costs have stabilised, and sales values have not been hit as hard as expected. However, one notable challenge in the current market is the time to sell. The time it takes for developers or new home agents to sell units has increased, stretching from one month to around six months or more. This lag affects the cost of borrowing and impacts the overall profitability of a project.
To address these concerns, Sebastian emphasised the value of using tools like Aprao to model and explore different scenarios. By showing the potential effects of longer sales periods, developers can better understand the cost of borrowing and the long-term value of their projects. This information can then be used to negotiate with landowners and set reasonable prices based on market realities.
Looking ahead, Sebastian believes that the current market presents opportunities for those able to navigate it effectively. By balancing spreadsheets, leveraging technology, and soliciting advice from knowledgeable agents and financial experts, developers can secure valuable opportunities and position themselves favourably in the market.
In conclusion, the land market, like any other sector of the UK property industry, has its challenges and opportunities. By adapting quickly, exploring new models, and approaching appraisals from different angles, developers can thrive in any market condition. With careful consideration of interest rates, time to sell, and market forces, developers can make informed decisions to boost profitability and set themselves up for success.