Key statistics and headline takeaways
- The market remains optimistic in terms of increasing business activity, although 86% of developers have concerns about a price correction or crash
- More than three-quarters (78%) of residential property developers expect their businesses to grow over the next three years and 12% are anticipating strong growth
- 82% of developers have concerns about access to funding, as traditional banks step back due to increasing fears over a market slowdown and the looming recession
- 86% agree the increasing focus from property development finance companies on ESG will make the sector more attractive for pension funds and institutional investors
The first Downing LLP property development report ‘Building Through Uncertainty’ gauges the opinions of 50 mid-sized UK residential property developers who collectively develop new properties worth around £1 billion a year. Click here to download the report >
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The independently commissioned report finds that, despite mounting near-term risks, sentiment among developers remains optimistic.
Taking a deeper dive into the concerns faced by developers, the report analyses the growing awareness of environmental, social and governance (ESG) factors in residential property among institutional investors, and discusses how developers can not only survive a downturn, but thrive.
The report also reveals that developers face a perfect storm of challenges – both internal and external. On a macro level, due to the war in Ukraine and post-pandemic supply chain strains, there has been a supply-side squeeze.
As a result, the report shows that an overwhelming number of developers are concerned about the cost of raw materials and access to funding. But what has been identified as the biggest risk over the next 24 months is not prices but red tape. The study finds that 72% of developers believe the length of time it takes to secure approval from councils will increase over the next two years. Meanwhile, two-thirds (64%) expect it to become harder to secure the necessary insurance.
The report also finds that there is confidence in a future increase in funding from specialist lenders due to the more flexible terms and conditions they can offer – something which is becoming increasingly appealing in the current environment. This is also being accelerated by more specialist lenders entering the market.
While the report emphasises a challenging macroeconomic backdrop, it also explores how the long-term structural drivers remain in place. For example, despite successive governments’ rhetoric, there have been decades of undersupply of new housing.
By taking a historical perspective, the report brings to light the importance for developers to take a long-term view and put in place contingency plans to ensure security during and beyond the current economic volatility. And if history is any measure, lenders, developers and institutional investors that stay the course with residential property development finance can achieve excellent long-term outcomes.
If you would like to read the report and the full analysis, please click the download button below.
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