How do SME property developers access financing for new projects?


Off-market sales may be the answer to funding difficulty

Last October, LendInvest published a report titled Starting Small to Build More Homes. The report explained how four out of five SMEs in the property sector have disappeared since the last boom in the property. In 2016, the proportion of new homes built by small developers (those building fewer than 500 per year) dropped to less than 25% for the first time.

Despite a range of solutions proposed in the report, recent lending figures show that lending to SME property developers is falling. Commercial lender Ortus Secured Finance says that the difficulty to source funding faced by SME developers is adding to the housing crisis.

In this article, we’ll look at the issues facing the industry, and how Castlereach helps developers to get their projects off the ground.

Structural barriers to building homes

The LendInvest report highlighted a number of structural barriers preventing increased supply. These include:

  • Lack of available land, with the number of small sites decreasing
  • Planning, with delays in the planning application process, cited as a particular issue
  • Difficulty in employing skilled labour, with a third of companies believing that Brexit will cause further labour force problems
  • Lack of financing, with lending conditions scoring only 1.63 out of 5

Is the government doing enough?

The government is acting to tackle the housing crisis. Its policies are aimed at easing the three main barriers to building new homes:

  • It has committed more money for new homes. The Autumn Statement confirmed that 44 areas are bidding for a slice of the £4.1 billion Housing Infrastructure Fund. It also committed an extra £1.67 billion for London, specifically for building more affordable homes.
  • It is overhauling the National Planning Policy Framework (NPPF), attempting to promote greater collaboration between local authorities and property developers. The aim is to fast-track the planning process.
  • The NPPF will also compel local authorities to release more brownfield land, especially for high-density use.

So, more land being made available. More money for housing development. Faster planning.

On the face of it, these policies appear to have had a positive effect. New build completions soared in 2017, and the sector has responded to the negativity surrounding labour shortages by employing tens of thousands of new recruits (HBF).

Lending to SME property developers falls by almost 10%

The actions taken by the government and the dynamic way that developers have responded to potential issues caused by Brexit is great news, so it’s incredibly disappointing to see that lending to SME property developers has fallen.

According to lender Ortus Secured Finance, lending to SMEs in the property sector fell by £1.2 billion, to £12.7 billion in 2017. It’s not like lenders aren’t lending to SMEs. While overall lending to SMEs is down by 2%, lending in some sectors is booming. For example, lending to SMEs in the manufacturing sector is up by 11% to £6.3 billion.

Ortus says that lack of funding is adding to the housing crisis. In London, only 33,000 homes were built last year – half of Mayor Sadiq Khan’s target, and this despite the Mayor’s focus on smaller sites that should be conducive to building by SMEs. So, if you’re an SME developer, where can you get the financing to kick-start your development?

Welcome to off-market sales to investors

Our investor base is keen to get in on the ground level of new property developments. We’ve got investors from the UK and abroad who are backing the property market in the UK to continue performing well through Brexit. They understand that buying early has many advantages. For developers, the advantage of connecting with these investors is the early-stage financing it provides; the boost that lenders seem less willing to provide.

To connect your new development with waiting investors, ready to buy today, all you need to do is contact Castlereach. Then let us do the rest.

Call us today on 0207 923 5680.

Live with passion

Brett Alegre-Wood

About the Author

Brett has over 20 years experience in all facets of property, he owns various companies centred around property and is the driving force behind the education and training at Castlereach. His companies have sold over £850 million in UK and London property and he manages over 1200 properties through his estate agency chain. Today he shares his time between UK, Australia and Singapore. He is married to Arlene and together they have 4 kids. Brett holds both the Level 3 Property Mark Qualifications for Property Sales and Property Lettings and Management.