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08/03/2017

3 ways to finance commercial property development
Don't have funding in place but want to develop your commercial premises? Development, self-build, and refurbishment finance may be the answer

3 ways to finance commercial property development
Property and the development of properties is a well-established industry, with many businesses making millions of pounds per year through development and refurbishment projects.

Purchasing, developing and either letting or selling property is an aspiration for thousands of people throughout the UK, the majority of which will not have the capital available to simply purchase and then develop a property outright.

There are a number of ways in which a property, other than one’s primary place of abode can be purchased including via auctions, using bridging finance, acquiring a commercial mortgage and more.

However, when it comes to the development, expansion and improvement of a property or a set of properties, the vast majority of people and even many developers will not have the funding immediately available. Developing a property is crucial to making a profit.

Whether a property is changed, building multiple flats or ‘units’ or if it is simply a matter of improving the state and offering of a property before selling it on, funding will play a huge part in the decision and in the profitability of the property and its future. For others who do not want to buy an existing property, buying a plot of land and building their own property from scratch is the way forward.

However, with property investments usually made for long term rather than short term reward, how is the money secured and what are the different ways of getting that much needed funding that could secure a hefty profit?

In short, there are a number of funding options, specifically for the development and improvement of properties. This includes development finance, refurbishment finance and self-build finance to name a few.

Development finance

Development finance is a fairly broad term which describes all nature of finance that is used to fund property renovations and refurbishments. The amount of loans in this case can range greatly too. The amount borrowed will depend on a number of factors too including:

Overall value of the property to be renovated or developed
The gross development value (GDV)
Anticipated build costs
Lenders do not however tend to lend 100% of the property’s value. This means that if the work to be carried out costs more than the property, the borrower will have to make up the amount. The GDV refers to the assessed value of the finished project [development]. Lenders will send an assessor to value and assess the property and its potential before money is lent.

Self-build finance

This type of finance is very unique, catering for those that build their own property from scratch. The UK market for these loans is quite small with only around 10% of homes being classified as ‘self-builds’ (Nationwide).

However, for those that do undertake the building of their own property, the property in question tends to be their primary place of residence. This means that the self-build loan is deemed to be a regulated mortgage contract, making it a much more beneficial offering for the borrower.

There are considerations that will need to be made however with a self-build property. For example, as a new build; build from scratch, these types of properties will be required to undergo air tightness testing under Approved Document L of Building Regulations (source: RJ Acoustics).

A major benefit of self-build finance is that the money borrowed is released in stages, reflecting the stages of the project itself. This reduces the risk to the lender of the borrower defaulting on the entirety of the loan, as smaller amounts are repaid in stages. Moreover, properties that are self-built tend to get around 20% or more than the cost to build them.

This means that for a property that costs £600,000 to build, selling such a property could yield a total sale worth more than £720,000.

Refurbishment finance

This is included under the umbrella of ‘development’ finance. However, some lenders offer much more bespoke offerings to those seeking to undertake shorter term work, rather than large scale development. What will often dictate the exact type of development finance taken out is the length of time for the proposed works.

Longer term works will usually fall into the broader category of ‘development’ whilst smaller and shorter term projects, say for a single property requiring limited improvements will require specific refurbishment finance. This type of finance could for example be used to improve an existing rental property to increase the value or rental from it. With properties in many areas of London in particular enjoying increases in value (ABC Estates), this can turn out to be a very sound investment.

As with development finance for larger projects, when it comes to renovation finance, lenders are very careful about what they lend and will not lend more than around 75% of the loan to value (LTV). This refers to the value of the loan to the asset purchased. Therefore, if a property cost £500,000 to buy, a borrower can reasonably expect a maximum loan of £375,000, meaning they would have to make up anything more.

14/02/2017

Retail group calls on government to reduce the burden of business rates

Christmas Shoppers Hunt For Gifts On The High Street

Oxford Street shops are facing dramatic tax rises
Business rates have become unsustainable and must be lowered to allow companies to invest, a leading business group has told the government.

The British Retail Consortium (BRC) has warned chancellor Philip Hammond that property taxes need reform because they now represent a "disproportionate burden" to businesses.

Read more: Culture shock: How London's theatres will be squeezed by business rate hike

In 1990, business rates were set at a third of the rental value of a property. Now, businesses must pay out roughly half the rental value of the property they occupy in additional taxes. Commercial property taxes in the UK are now the highest in Europe, and across all OECD countries.

We can reveal that Oxford Street retailers such as John Lewis, Debenhams and Top Shop are all facing business rate rises of around 45 per cent for the year 2017 to 2018. The British retail sector as a whole will have to pay £2bn more in business rates over the next three years.

High property taxes put British businesses at a competitive disadvantage, despite the UK's low corporation tax rate, said Jim Hubbard, policy advisor at the BRC. For every £1 a business pays in corporation tax, it must pay £2.30 in business rates.

"The rate will surely go above that value in future...at some point, it will need to stop," Fundamentally, business rates are too high. Something will have to change."

The BRC has proposed that re-evaluations of business rates occur more frequently. Rates were re-evaluated for the first time in seven years in September 2016, and with rents sky-rocketing in London, businesses in the capital are being hit particularly hard.

13/02/2017

Following a positive end to a turbulent 2016, January saw a relatively solid start to 2017, with industrials continuing to lead the way”.
The figures followed a healthy final quarter, in which values rose 1.4% and 0.6% in December. January’s total returns were down from a particularly strong December, and were still healthy at 0.7%.
However, whilst commercial property values have been promising, the uncertainty posed by Brexit are still having an effect on deal completion rates.
“Deals have taken longer to complete and a greater proportion have been withdrawn but, on the flip side, values have held up remarkably well, reflecting the UK’s strong fundamentals,”

The comments follow findings that a quarter of the value of all commercial property deals since June 23rd, the day of the EU referendum, have fallen through as investors have become more anxious about the market climate.

Approximately £3.5bn worth of deals have failed to complete since the day of the referendum took place, despite values maintaining promising growth. The findings show that completion is occurring at an average of 3% below asking price.
Whilst completion rates are starting to increase – approximately half of the deals have now completed, plus 15% now under offer –
“we do not know the full implications of the UK’s decision to leave and how that will manifest itself in occupational market

03/02/2017

Enquiries from investors in China up a third in last three months of 2016

The number of enquiries from Chinese firms looking to invest in the UK commercial property market jumped by a third in the last three of months of 2016, the spike was being driven by a weak pound following the UK’s decision to leave the EU last June, which was allowing Chinese investors to pick up more schemes for less money.

This interest is also moving away from central London and into residential and mixed use developments in other UK cities, the firm added.

“Since the referendum vote on Brexit, we have seen more Chinese development companies looking to acquire UK development sites or existing assets.

“They currently enjoy a discount against sterling, so they are actively seeking new global investment opportunities to counter a downturn in their own domestic markets.

“Our UK regional cities face a shortage of housing and strong population growth; combine this with lower land values, low interest rates and more affordable house prices, and it is easy to see why the UK regions offer attractive growth prospects for these well capitalised developers.”

31/01/2017

Investor demand for UK commercial property recovering

In spite of some concern over the potential relocation of companies based in the UK following Brexit, demand from overseas purchasers in the commercial property sector rose during the final quarter of 2016.

This was the second quarter in succession where growth was recorded, with enquiries for purchase also rising. However, expectations for rental and capital growth switched back to negative territory in central London, according to the latest data released by the Royal Institute of Chartered Surveyors.

Rising Demand

21% more respondents saw an increase in demand during the final quarter of 2016, a rise of 9% from Q3. The number of foreign investors also rose, with the weaker exchange rate a prominent factor.

20% more respondents experienced a rise in foreign investment enquiries, up by 7% quarter-on-quarter. What’s more, this was a significant change from the -27% recorded in the second quarter of the year.

In the capital, investment trends remained fairly mixed. Industrial assets saw a substantial rise in interest, but overall enquiries were stagnant in the officer sector and declined in the retail market.

Investor demand for UK commercial property recovering
Investor demand for UK commercial property recovering
Foreign investment did grow strongly in all sectors in London, with the fall in sterling since the referendum vote prominent in enticing demand.

Forecasts

During the next 12 months, those questioned feel that capital values will rise through the majority of sectors. 14% more respondents feel that values will rise rather than fall in the next three months.

This said, occupier demand is less optimistic than that of investors, with demand only marginally increasing at this level.

A lack of demand has encouraged landlords to up the value of incentive packages on offer to would-be tenants in the office and retail sectors. For the office sector, inducements have risen in each of the last two quarters for the first time since 2013. 14% more respondents saw a rise in the final quarter of 2016.

12/12/2016

UK has highest property taxes in developed world

The OECD analysis shows property taxes accounted for 12.7pc of the total tax burden in 2014 - the latest year for which data are available.
The squeeze by the Government on home owners and business premises means Britain has the highest property taxes in the developed world, it has been revealed.

Analysis by the Organisation for Economic Co-operation and Development (OECD) shows property taxes accounted for 12.7pc of the total tax burden in 2014, the latest year for which data are available. This is up 0.3 percentage points compared with 2013 and is more than a percentage point higher than in 2011.

It means levies on property as a share of total taxation are higher in the UK than anywhere else in the developed world. At 5.6pc, the average among the OECD’s 35 members is less than half the UK figure.

Britain is also bucking international trends. Since 1965, the international average has fallen from around 8pc, while the UK Government has increasingly relied on property taxes for its income. Property taxes now account for more than 10pc of total tax revenue in just four other countries apart from the UK: Australia, Canada, South Korea, and the US.

In 2014, UK taxes on residential and commercial property, including stamp duty, inheritance tax and business rates, jumped to £74.2bn in 2014, up from £69.8bn a year earlier.

The increase pushed up levies both as a proportion of the Government’s total tax take and national economic output, with property taxes now representing the highest share of the tax burden in at least 35 years.

Revenues from stamp duty climbed to 2.4pc of the UK’s total tax take in 2014, from 1.62pc in 2011, the OECD’s latest revenue statistics bulletin says.

Property taxes are equivalent to 13pc of GDP in the UK, against 3.9pc of GDP in France, 2.8pc in the US and 1.9pc across the OECD.

While the former Conservative Chancellor of the Exchequer, George Osborne, took steps to reform property taxes, research has shown that changes have slowed the housing market and raised half as much money as the Treasury predicted.

Many companies have warned about the negative impact on the economy of Britain’s sizeable business rates bill, which has grown from being the seventh largest revenue raiser for the Treasury in 2010 to the sixth largest today, amid a prolonged freeze in fuel duty.

“Theresa May’s Government has the aspiration to cut corporation tax to the lowest level in the G20, but what we need more than ever, given the current and future challenges facing the economy post-Brexit, is competitive property taxes so as to ensure we are well and truly ‘match fit’.”

The rising tax burden on British property owners appears to be benefiting renters in the London market, at least briefly. New figures show more properties have been made available to rent after the stamp duty rise in April. In London, buy-to-let landlords rushed to beat the increase by purchasing more properties before the deadline.
"Higher than usual numbers of homes available to rent have boosted tenants’ negotiating power. Stock growth has outstripped that of tenants.”

06/12/2016

UK COMMERCIAL PROPERTY
We believe UK commercial property, which is starting to recover following a slew of fund redemptions, remains an attractive asset class despite showing recent vulnerability to headwinds like the EU referendum result. As a longer-term investment, UK commercial property should be supported by a recovering UK economy and we are seeing this in retails sales and jobs data. An appreciating sterling could also help the asset class in the future.

01/12/2016

Post-Brexit outlook for Britain's financial stability 'remains challenging'
The Bank of England highlighted the danger to Britain's financial services sector of withdrawal from the EU1
The Bank of England highlighted the danger to Britain's financial services sector of withdrawal from the EU

The outlook for Britain's financial stability following the Brexit vote "remains challenging" and is dependent on an orderly exit from the European Union, the Bank of England has said.

In its Financial Stability Report the Bank said that as a result of the June 23 vote, risk to financial stability "remains elevated".

The report said: "It will take time to clarify the UK's new relationships with the European Union and the rest of the world as well as for the UK economy to adjust to these changes.

"The orderliness of the adjustment will influence the risk to financial stability."

Bank governor Mark Carney said clarity on the details of Brexit would help an orderly transition and that it is important British businesses know "as much as possible, as early as possible".

He also dubbed the UK the "investment banker for Europe", adding that it is in the EU's interests that Brexit damage to Britain's banking sector is minimal.

"These activities are crucial for firms in the European Union economy, and it's absolutely in the interest of the European Union that there is an orderly transition and that there's continual access to those services," he said.

His comments come as the financial services sector frets over whether it will continue to have access to the bank passporting system.

Banks and financial firms wanting to trade with a country in the European Economic Area (EEA) must apply for a passport, which allows them to sell their products to any country within the EEA.

The Bank added: "Changes to the trading relationship between the United Kingdom and the European Union may require firms to alter their operations and the services they provide.

"If any such adjustments take place in a short timeframe, there could be a greater risk of disruption to services provided to the European real economy, which could spill back to the UK economy through trade and financial linkages."

The report also said Donald Trump's US election victory earlier this month had "reinforced existing vulnerabilities", flagged the potential for weaker global trade and spoke about heavy debt in emerging market economies.

But despite the fall in sterling, a reduction in commercial property prices and indications of reduced investment into the UK, the Bank said economic activity and business sentiment have recovered from "low points" immediately after the referendum and are "materially stronger than had been expected in July".

The report comes alongside the Bank's annual health check for British banks, which saw Royal Bank of Scotland flunk its stress tests.

The lender, which is 73% owned by the taxpayer, emerged as the worst performer in the stress test and has drawn up a plan overnight to bolster its resilience in case of a financial crisis.

Prime Minister Theresa May's official spokeswoman said: "What matters the most for British businesses - whether that's the financial services sector, the automotive sector or others - is the outcome of these negotiations, and that is what we are focused on. How do we get the best deal for Britain as we leave the European Union?

"Our approach, therefore, is guided by that, which means where we can provide more certainty we will seek to do so - the Prime Minister has been clear on the timetable for triggering Article 50 - but also making sure that we've got the strongest negotiating hand. That is not going to mean going into every twist and turn and detail of these negotiations."

She added: "We are going to trigger Article 50 by the end of March next year. It's a two-year process, so we know when the end-point is coming."

21/11/2016

Industry bodies slam new business rates appeals system which could cost small firms £700m

A consortium of business lobby groups has condemned a Treasury proposal that blocks small firms from appealing against business rates up to a certain level, a move it is estimated could cost more than £700m in overpayments over the next five years.

Eight business groups representing SMEs, retailers and pubs say new proposals risk burdening small firms with huge costs. The Government is consulting on an overhaul of business rates, which are paid on top of commercial property rents.

Under a new “reasonable professional judgment” provision, ratepayers will not be able to argue against a rates bill if its margin of error was inside 15pc, in an attempt by the Government’s Valuation Office Agency (VOA) to try to reduce the number of appeals.

The new business rates appeal regime, known as Check, Challenge, Appeal, has been condemned by the Federation of Small Businesses, the British Property Federation, the British Beer and Pub Association, the Association of Licensed Multiple Retailers, British Hospitality Association, retail body Revo, Business Centre Association and the British Retail Consortium.

High Street
CREDIT: CLARA MOLDEN
Research by property consultancy Daniel Watney and Blackstock Consulting, using official VOA data, found a 15pc margin could mean small firms in England could overpay by up to £137m a year. Over a five-year ratings cycle, it would work out at more than £689m.

Some businesses could even be pushed above the exemption criteria by a 15pc margin, meaning they would have to pay for the first time.

Martin McTague, of the Federation of Small Businesses, said: “This research shows that businesses that are already struggling could be pushed into insolvency, with smaller firms particularly at risk.”

The organisations called for the Government to revert to an earlier system to try to cap the increase that businesses will have next year at 12.5pc.

Brigid Simmonds, of the British Beer and Pub Association, said: “For a business struggling to make ends meet, 15pc could make a real difference and should their appeal be successful, they should receive the full refund.”

Britain’s property is supposed to be revalued every five years, but the Government controversially delayed the last revaluation by two years, claiming it would create uncertainty among businesses while the country was still recovering from a recession.

The changes, due to take effect in April, will lead to many businesses experiencing a drop in rates. But others, such as Regent Street shops, could face an increase in bills of up to 87pc

14/11/2016

Hansons Commercial Property Consultants

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Office & Industrial Agency
Our agency team specialises in all aspects of commercial agency work from disposals, and lettings to acquisitions.
We have extensive experience acting on behalf of a wide ranging client base from major corporate organisations, developers and funds to private individuals and public sector bodies. Dealing with a broad spectrum of property across the region we offer a particular specialism in commercial property sale and leasing. Being a dedicated and focused organisation we are able to provide a superior personal service.
In agency a sound understanding of the market is key at Hansons Commercial we have an in depth knowledge of both the local and regional market and are committed to delivering a high quality, partner-led service. We have an excellent working relationship with a network of contacts spanning other agencies, commercial developers, local authorities, regeneration bodies, government offices and other key organisations that ensure our advice is unrivalled.
Retail & Leisure Agency
Our Retail and Leisure team specialises in all aspects of in town, edge of town and out of town retail and leisure agency from acquisitions, disposals, investment, development and asset management both regionally and nationally.
We are highly active in our core markets ensuring that our clients benefit from our significant market knowledge, creative thinking and innovative input. We believe in offering clients well informed and relevant advice which takes into account shifting trends and fluctuating values.
We provide a high quality dedicated partner level service with over many years of experience in the retail & leisure sector and have an excellent network of contacts throughout the London & Essex.
We have extensive experience acting on behalf of a wide ranging client base from major retailer and leisure operators to national and regional developers.
Hansons Commercial Retail and Leisure Team have a continual desire to exceed client’s expectations and provide sound beneficial advice.
To discuss any aspect of your property requirement whether in the immediate future or if you are forward planning to allow for business expansion, amalgamation or future market movements please call to discuss how we can help secure the right property for your business.

Hansons Commercial

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