Property development is a strategy which allows a property owner to maximise the value of their property (or plot of land). The level of development can vary from a light renovation (e.g. new furnishings, repairs and maintenance) to knocking down the existing property and developing new builds on the plot.
Types of property development include:
New builds: taking a property (or plot of land), knocking down any existing properties on the land and then building new properties.
Commercial conversions: taking a commercial property such as an office block and repurposing its use to residential accommodation.
Bungalow conversions: taking a bungalow and converting it into two stories, either through a loft conversion or by developing a second floor.
Extensions and/or conversions: taking an existing property and maximising its value by either extending the property or converting existing spaces into additional living space e.g. loft conversions.
Modernisation or reconfiguration: taking a property and changing its layout and floor plan (e.g. by making an open-plan living space or altering the layout of rooms).
Who is property development for?
If you have a property (or land) but but believe it (either the property itself or the land it is on) has development potential, then this strategy is worth exploring to try to maximise the property’s/plot’s value. This is especially worth considering if you wish to sell the property/plot and want to maximise its potential sale value. This can benefit:
Individuals in negative equity by increasing the value of their property and getting them out of negative equity.
Individuals looking to maximise their return on investment on their property.
In addition, if you’ve been struggling to sell a property it could be worth exploring its development potential. A developed property is often more desirable, this helps sell the property more quickly once the development is complete and for more money.
To determine whether your property has development potential, you can look at other properties on your street or in your area. If all the other properties on the road or in the area have successfully been developed (e.g. built rear extensions/loft conversions or been knocked down for new builds etc.) but yours remains unchanged, there is a good chance you could develop yours too!
How does property development work?
If your property or plot is suitable for development, then there are typically two ways to take advantage of this strategy (but it will depend on your property and the IPA):
Option 1: Sell the property to a developer subject to planning on an option agreement.
With this option, you agree to a sale price at which the developer has an option to buy your property for, if they get planning permission for their proposed development. This sale price is typically more than the market value for your property due to the potential added value of the development.
With the option agreement signed, the developer draws up their plans and applies for planning permission for their proposed development of your property or plot. If planning permission is granted they have the option to purchase the property at the agreed price in the traditional manner. If planning permission is refused, the developer can walk away from the deal.
Note: If planning permission isn’t required for the developer’s proposed development, it is likely that you’ll just agree to a purchase price and sell the property to the developer in the traditional manner.
Option 2: Joint venture with the developer and benefit from a profit share of the development once it is sold.
This option is more of a business agreement; you bring the property and land to the table and the developer brings the rest (development finance, tools, experience, contractors etc). It allows you to develop your property without being a developer yourself, by leveraging the experience, knowledge and team of a developer.
Once the terms of the joint venture are agreed, the developer will apply for any necessary planning permission for the proposed development. Once planning permission is granted, works will begin on the development which are completely managed by the developer.
Once the development is complete, you will be paid a profit share of the final development profit as stated in the joint venture terms agreed at the beginning of the agreement. Typically, the sum of money received from a joint venture and profit share is larger than that received from an option agreement.
Benefits of property development
There are a number of benefits to developing a property. The primary benefit of this strategy is that if your property has development potential, you can benefit from the added value of developing the plot instead of someone else who you sell the plot to. Subsequently, it is a way you can maximize the sale value of your property.
In addition to maximising the sale value of your property, there are several other benefits:
Less chance of the sale falling through: when selling a property to a developer on an option agreement, there is less chance of the sale falling through. This is because developers invest money into the planning application process. If planning permission is granted, it is unlikely they’ll default on their option to buy as they’ll want to recover the costs of the planning application.
Less time on the market: once a property has been developed it is often more desirable and as a result, will sell more quickly.
Where can I find someone who offers property development?
Do you want help developing a property? Do you think your property or plot of land has development potential? If so, make sure you are the one who benefits from the value it could add to your property. Use Doormarked to find an independent property advisor (IPA) in your area who specialises in property development, to discuss the options available to you and help you with your property development!
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