Just like most wealth-generating enterprises, it’s a strict risk-versus-reward model. And one of its biggest challenges is that the barriers to entry are minimal. After all, anyone can develop property by buying a property or some land and then hiring various professionals such as architects and builders to get building. What could go wrong, they think? Well, the answer they’re looking for is ‘quite a lot’, as many first-time developers subsequently discover. So, if you’ve ever fancied trying your hand at a spot of property development, let me share a few tips that should help you avoid some of the bigger boulders that lie in your path. There are quite a few smaller ones too, but for now, let’s stick to the whoppers. The good news is that small-scale development is well within the reach of most people, and with some basic risk mitigation in place, the process is likely to be more profitable and successful.
Arguably the most significant development risk is what we call planning risk. If you’re developing property, whether a new build or simply converting an existing building, you’ll need planning permission. Try building anything without it, and you risk having to knock it down, get fined, or even be imprisoned, so obtaining permission isn’t exactly optional. The current planning infrastructure originated in the 1950s, and today we’re faced with local planning authorities that are under-resourced, over-stretched, demotivated, and where many of the most experienced people have left. Planning applications that should nominally be assessed within eight weeks (thirteen weeks for larger projects), nearly always take much longer. These days applicants are frequently told seven and a half weeks down the line that they need to submit further information, e.g., by procuring various surveys and reports. This stops the clock, and you now need to spend more time and money jumping through some hoops with no guarantee of a successful outcome. Some applications have been in limbo for years. And if you’ve already purchased the property in the hope of getting planning permission, you’ll not only be racking up finance costs while you wait, but the property may also even go down in value if planning is eventually refused.