The residential development funding landscape has changed markedly over the last year, becoming more accessible than at any time since the financial downturn, according to specialists at Knight Frank.
A new comprehensive survey of lenders active in the residential development market from Knight Frank finds that this trend is set to continue, with a majority of lenders planning to increase their funding of residential development projects.
The survey of more than 40 lenders active in the market shows:
– A net balance of 70% of lenders expect to increase the level of financing they give the residential development sector over the next 12 months
– More than 50% of funders will now consider schemes with planning risks
– The sector now sees a wider range of finance options open to developers; the new funding packages are typically more flexible than traditional loans. One in ten of respondents offers at least five types of finance
– The most attractive development region is Greater London (95% of funders would consider a scheme there), followed by the South East (79%) and then the South West (37%)
– The average minimum loan facility is £6.6 million; the average largest is £100 million; 91% of funders will consider involvement in mixed-use and multi-unit schemes.
Knight Frank’s Development Finance team, which advises developer clients on the best funding arrangement for their projects and finds sources of funding, has a positive view of the current situation for developers.
Peter MacAllan, head of development funding at Knight Frank Finance, says, “Overall, it’s a fairly bright picture for the UK housebuilding industry, with more funding providers in the market and funders prepared to look at sites without planning permission in place.
“In the last 18 months we have seen a huge influx of foreign equity funding the development of (mostly London) residential sites. A number of foreign banks, particularly from South East Asia and the Middle East, have funded local investors in the acquisition and development of large multi-unit schemes.
“However, in the last few months, private and institutional US investors have begun to dominate the scene. Attracted by the near equity returns residential lending has given and the security of a first legal charge on London assets, we have seen the number of US entrants more than treble in the last 12 months.”
Sebastian Wallis, head of residential development valuations, says, “The profile of our clients has changed markedly in recent years, with more requests for specialist residential development valuation advice from overseas-based lenders and from new entrants to the marketplace.
“Competition for prime sites in London and the South East is fierce and whilst these markets continue to attract greatest interest, stronger macro market fundamentals and Government measures such as Help to Buy are helping to drive activity in the regions.”
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