For property developers operating in the UK, the scope of funding options available from specialist lenders has never been greater. From bespoke development finance to bridging loans to commercial mortgages, options abound for financing small and large development projects.
Even so, the results of a new poll suggest that up to one in three property development projects have been put on hold due to potential costs and budgeting issues. Conducted by lender Atelier and Paragon building consultancy, the survey found that long delivery times, skilled worker shortages, and skyrocketing fuel prices are causing concern among developers and surveyors.
Rising Labour Costs
One in four of the developers and surveyors polled said that their labour costs had increased by 15% or more over the past year, putting pressure on their already stretched budgets.
Another major area of concern for the sector is raising interest rates, with almost 95% saying the recent spike in fuel prices was a major issue for them.
Meanwhile, uncertainty related to Covid is no longer a concern for most - fewer than 10% of those surveyed said that the pandemic is having any real bearing on their property development projects.
More Inflation to Follow
Commenting on the findings, lender Atelier and Paragon building consultancy, Rebecca Nutt, indicated that there could be further challenges to come for the UK’s property development and construction sector.
“Residential real estate is buoyant, but the waves of inflation keep coming, and unwary developers risk being swept onto the rocks of surging build costs and project delays,” she said.
“To be successful in today's market, you don’t just need a watertight development plan but also the courage, skill, and contacts to change it at short notice without losing momentum,”
“At Atelier we’re acutely aware of the cost pressures our customers face, and that’s why we provide each one with access to our team of in-house construction and finance professionals – who can quickly assist if unforeseen events force the project to change tack.”
Meanwhile, the director at Paragon building consultancy, Robert Kendall, suggested that easing material cost inflation over the past few months could be short-lived at best.
“While material cost inflation eased off at the start of 2022, our research suggests the respite is likely to be brief,” he warned.
“The supply chain stepped up well to the surge in developer demand as the pandemic eased, but the spike in fuel and raw material prices triggered by the war in Ukraine means that cost pressures are once again likely to eat into developers’ bottom lines this year,”
“Those pressures are being felt most keenly by smaller developers, who have less purchasing power and limited leverage when it comes to persuading newly emboldened contractors to share the cost risk and work on a fixed price basis,”
“With the Bank of England widely expected to increase interest rates further in 2022, the fixed-rate finance and expert support offered by Atelier provide vital certainty for developers in an exciting but testing market.”