Features and news articles
Planning Opportunity from Office to Residential?
5 March 2013
The government has legislated to allow the change of use of offices to
residential WITHOUT planning consent! New laws will come into force in
April! Sounds great but...
Local authorities can “apply for exemption”. Most in London and large
cities already have. It is not clear if some/all will be successful (as
there must be clear reasons) but it is clear the real rational behind
the resistance is the usual friend….MONEY!
To illustrate this, imagine a local authority taking £30,000++ per annum
in business rates on a sleepy old 150m2 office in London. Suddenly, the
owner can change the use to residential…say 2x 2 bed apartments. Council
tax might attract £6000 at best and that is paid to central government
whereas the £30000 business rate is paid to the council directly. Now it
is easy to understand the resistance of the council despite the
supply/demand drivers and political hot air.
It seems likely there will be exemptions and if not councils will try
other ways to stop the law (or at least curb its effect). This kind if
political fog is quite normal in the British planning system. In short,
delays, no clear policy and a lack of backbone in decision making it
quite normal. However, as ever, the lack of clarity, although
frustrating provides the opportunity for the investor to generate large
returns should a planning decision go in their favour.
My experience over many years has shown that in planning there is never
(in reality) any clear or sudden change in direction. However the
changes that are made from time to time “load the dice” a bit. I believe
the law change on permitted change of use from office to residential is
one such moment. For the longer term investor, purchasing a site now
with potential to convert to residential from commercial may be very
wise and produce handsome returns. A particular local authority may well
have opted out of the government scheme but the political will is clear.
Should a decision go to appeal, arguments are stronger in favour of the
developer.
I have for some years argued that “buy to let” is not enough. “Buy to
develop to let” is the theme behind buy2letExpert.com and I firmly
believe that adding some development gain into the buy to let mix is not
beyond the reach of even smaller investors. For more detail see our
section development . Buy the house with a little development potential
and not the place needing just a lick of paint only. Development could
just be a mansard roof or an extension into the garden. Even a
home/office in the garden may be enough? Politics have even moved on
these areas too.
To summarise, do not expect a change in government policy to suddenly
provide great opportunities BUT do not ignore the gradually changing
trends in thinking. When purchasing, doing homework on planning policy
is essential and can be very fruitful. Such a buy to let investment can
start life on yields possibly double the average for the similar
undeveloped property next door! To summarise:
“Buy, then develop, then let”
Development to Let in London... 10% and yields rising
6 January 2013
Aside from social housing, development for let is currently only a
tiny proportion of the U.K. property market. I firmly believe the market
will grow exponentially in the coming years as the U.K. starts to catch
up with many of our European neighbours. Our 20 years of experience are
London focused but the same principles will apply in other parts of the
U.K.
Development to let is already starting to attract the interest of the
government and larger home builders who see a shift in property buying
behaviour, especially in London, away from owner occupation and towards
the private rental of homes. The buy to let London investor must follow
this growing market trend in order to maximise returns in the future.
Latest Bank of England and mortgage provider data adds to gathering
evidence that cheaper and more plentiful finance will become available
to investors in 2013. It is my opinion that we are moving towards the
later phase of a golden period for residential property investment and
now is the time to invest. Consequently, demand for stock will
start to increase in 2013. London property investment should not be
delayed but potential purchases should still be evaluated using
yardsticks including:
Development to let Potential
Property development all sounds very grand but could be as simple a
simple house extension or a couple of flats from a former house.
Potential must be expertly evaluated but look for potential that may
have been missed by others. Development of a property can be upwards
(such as mansards), downwards (such as basements) or outwards and may be
just simply a change of use. Think broadly and in three dimensions! High
ceilings may mean more floors? London “butterfly” roofs may also mean an
extra floor is possible? Always look “up” at a building and not just
“at” a building. Learn to see real potential that others cannot see.
Think with a very open mind. Executed potential can increase yields and
capital values enormously and the tricky planning system can actually
help the investor reach huge returns!
Yield
Measuring the gross rent as a percentage of the property value, yield
is an important yardstick to compare investments. For the buy to let
investor, potential yield is also important. When purchasing a property
look for drivers of yield growth. This may be development potential (see
above) or simply rearranging and/or improving a property to attract more
rent.
Capital Growth
Always assume zero real (after inflation) growth. If negative numbers
look likely, consider deferring the purchase. However, as finance
becomes easier and cheaper, expect positive numbers.
Property Management
Always consider ease of management. It will be cheaper and easier to
manage properties in similar areas. It may be even better if some a
focused in the same buildings (e.g. a number of apartments).
Leasehold Properties
Be very wary when purchasing such properties. Expenses can be high
and sometimes sudden. A new lift, new roof, new windows are examples.
The freeholder may overcharge. In general I shy away from leaseholds
unless I am also associated with the freehold.
Demand
At the bottom of the list only because we operate in London and it is
no secret demand remains explosive. None the less always check demand
drivers such as immigration, local house building and local demand
factors. Check to see places are not sticking on the market using
rightmove, zoopla and other similar sites.
It has never been a better time for the buy to let investor! Yields far
exceed bank deposits. It is always the case that at such times (like in
previous cycles) banks cannot react positively to this. For those with
cash or access to funding there is a huge opportunity for buy to let
property investment in London.
Chris Jackson (Director)
Buy2LetExpert.com
|
"It has never been a better time for the buy to let investor! Yields
far exceed bank deposits."
Chris Jackson of Buy2LetExpert |
