With a raft of factors affecting smooth running of developments at present, it would be prudent for brokers and advisers to encourage investors and developers to build in a higher contingency.
Dave Pinnington is CEO at Finance 4 Business
With pandemic-induced restrictions starting to ease, the economy fully open for business again and everyone raring to get back to a semblance of normality, it feels as though we’ve reached a turning point after the tumultuous time we’ve experienced in the last year or so.
Investor and developer activity is set to increase in line with this, with no shortage of opportunities - from brownfield sites to re-development of existing buildings.
However, with a raft of factors affecting smooth running of developments at present, it would be prudent for brokers and advisers to encourage investors and developers to build in a higher contingency. Failure to do so could significantly affect profit margins.
The impact of a backlog across professional services
With solicitors, lenders and valuers having been subject to working remotely, the processes each of these undertake have not only been affected - becoming less efficient perhaps due to slower access to company systems – but as one process often relies on another, there is a cumulative effect of this delay.
This is elongating the purchasing process and causing delays that can impact profits.
Add this to the backlog of planning applications as council operatives have also been subject to remote working, and it’s not difficult to work out that these delays will have a knock-on effect for any developer looking to bring a project to completion within a set timeframe.
Building material supply issues causing delays across development sites
The supply issues affecting the construction industry have been widely documented in recent months, with issues around supply of essential materials such as cement, timber, steel and electrical components. This is as a result of higher, unprecedented demand, but also scarcity fuelled by a sharp rise in container shipping costs.
This is driving prices up, bringing availability down and lengthening lead times. These are all factors that can dramatically affect a project’s profitability.
These factors should not put investors and develops off right now, but instead make them seriously consider contingency planning.
Advising them to work with specialist lenders that know and understand the market and the factors that can affect development project costs, and help with effective planning and getting the right resource in place, is crucial.
A head stuck in the sand approach is a dangerous one. Similarly, having the right kind of specialist insurance in place to help provide cover in these cases of additional factors is a wise move – so again, urging them to seek out those lenders that can help with access to this will reduce headaches for them later on.
The road ahead, while open, is by no means an even terrain. But with the right planning and the right advice, which good quality brokers are perfectly placed to provide and point in the right direction for specialist services, there is no reason why investors and developers should shy away from the plentiful opportunities that are on the table right now.
