Intending to sell land to a housebuilder?
SOURCE: INSIDER, JANUARY / FEBRUARY 2010
I am a landowner with a site allocated for residential use. Prior to the downturn I was looking to sell my site – what can I expect now?
The housebuilding industry has been strangled recently by a lack of finance. There are few industries which rely so heavily on bank funding – from housebuilders who need to fund site acquisition, to househunters looking for mortgages.
But there are signs the market is improving. Mortgage availability is increasing, so housing stock is shifting, bringing the focus back to land acquisitions. With the debt tap for land acquisitions still not fully back on, housebuilders have to look at innovative ways to secure land supply rather than throwing money around. So if you own land which you’re thinking of selling to a housebuilder, what can you expect now?
Don’t expect a great deal of cash up front. Housebuilders can no longer pay big sums upfront and wait years for a return. The gap between expenditure and income is narrowing due to both Bank appetite for risk disappearing and for sound cashflow reasons.
Housebuilders now expect landowners to share risk – sharing risk on planning, abnormals and selling prices. Many deals are now being structured as “pay as you go” with landowners getting their return through a fixed amount or percentage of the selling price when houses sell. The initial capex is reduced and cashflows are smoothed over the development life.
The future is clearly about sharing risk and partnering to deliver value for both parties. If you have a site, get sound advice and do a realistic deal with a reputable housebuilder. You cannot rely on an ever increasing market to save the day.
And it’s also about patience. If you are in for the long term then you will still be rewarded, and may make more over the piece, as many commentators expect some price spikes as the market picks up again. Just don’t expect a fat cheque on day one.
AUTHOR: Barry McKeown
Complete the details below to send a link to this page to a friend.