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Renovating dilapidated buildings – the best route for property investors?

Whilst the development of brand-new developments is one solution to the UK housing shortage, a much more obvious answer is the regeneration of old, empty buildings and brownfield sites.

This very argument was made in the latest government report entitled Living with Beauty, released by the Building Better, Building Beautiful Commission in January 2020.

The report calls for more industry action to recycle existing buildings; a motion that many property investors are on board with. Not only would the rejuvenation of existing housing stock and brownfield sites improve local communities, it would also deliver a wave of truly unique properties that can make for an attractive investment opportunity. 

Unlike a fixer-upper, which requires remodelling and maintenance, a renovated home has a fixed property value. Mortgage lenders tend to see this type of investment property as low risk when compared to a property that you plan to renovate yourself.

According to the CPRE (Campaign to Protect Rural England), there are more than 18,200 brownfield sites in the UK, covering in the excess of 26,000 hectares of land. Even allowing for a relatively low housing density of 41 homes per hectare, England has sufficient brownfield land to build more than 1 million new homes – a promising figure.

Although the principle of property renovations looks good on paper, many property developers shy away from taking on such projects. The reason? Planning Bureaucracy.

A key problem is that existing buildings hide construction challenges that are only uncovered during the building process itself. Frequently, these force the developer to amend the project’s design, making the existing planning permission somewhat invalid.

To be able to complete the scheme, certain changes require the developer to apply for updated planning consent. Receiving written planning consent can take up to 16 weeks, during which time the developer’s hands are tied.

Given that the company has lending on the scheme, the developer can’t make the necessary changes without the updated written consent because they would be in breach of the lending terms. At the same time, the developer can’t proceed with the build if the required change is a critical path item in the scheme’s overall build programme.

In the interim, the developer has to mobilise the architect, the planning consultant, provide updated addendum consultant reports, wait for the council to validate the application and wait for determination after the consultation period. This wait creates a huge burden on the feasibility of a scheme, jeopardising its realisation but also putting a huge financial burden on the developer.

Effectively, this means that the developer faces having to service interest costs for an additional three-to-four and possibly beyond six months, depending on how sensitive the building is. Furthermore, there may also be increased costs with contractors and subcontractors due to the plan changes and building delay.

As a result, traditional developers may deem the restoration of old properties necessary but impossible to realise from a business point of view.

As a property developer with in-house build arm, we strongly believe that the reconstruction of abandoned buildings can have a significantly positive impact on the UK’s housing shortage. To encourage more developers to take on restoration projects, however, we would like for Minister Pincher to introduce steps that shorten the wait for minor amendment planning permissions under s73 of the Town & Country Planning Act; especially if previous consent was already granted.

*Jason Tema is the director at Clearview Developments, a property developer that specialises in securing land, obtaining planning and the realisation of high-end residential development.

Poll: Could renovating dilapidated buildings be the best option for property investors?

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