Developers urged to consider liquidity of exit strategy
Property developers need to consider the liquidity of their exit strategy in the current market and choose flexible finance options, LendInvest has said.
The specialist property lender noted that sales liquidity has remained relatively robust in recent years, due to the imbalance between demand and supply, a favourable sales market and various government incentives for homebuyers.
However, rising interest rates have started to cool the property market.
“As both sales rates and values begin to soften, developers would be prudent to contemplate alternative exit strategies and carefully consider the associated cost and logistical factors,” LendInvest said.
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The lender said that developers should opt for products that cater to the entire development lifecycle, providing various options for extended sales periods or even retention of units on longer-term facilities.
“This cost-effective flexibility empowers developers with greater choices if their business strategy diverges from the initially intended path,” the firm added.
Additionally, LendInvest urged developers to be sensible with appraisals, noting that some may be tempted to engage in less profitable projects out of restlessness in a challenging market.
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“Lenders are now subjecting build costs, profit margins, and end sales values to more rigorous scrutiny,” it said. “Squandering resources on unrealistic professional reports can be detrimental. It is therefore imperative to adopt a realistic approach when appraising a site, and brokers can play an instrumental role in facilitating this process.”
LendInvest also noted that many lenders are reducing their risk appetite in the current market, meaning that developers’ equity is often thinly stretched, which can reduce cash flow.
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It said it is “of paramount importance” to collaborate with lenders and professional partners who understand this and can ensure the uninterrupted flow of funds.
“While the terrain for small- and medium-sized enterprise (SME) property developers in the UK undeniably presents formidable challenges, it is imperative to remember that success remains attainable,” it said.
“By embracing these practical guidelines and capitalising on the wisdom of industry professionals, SME developers can navigate these uncertain times and continue to flourish within the residential property development sector.”