CrowdProperty director warns of rising risks in development finance sector
CrowdProperty director Andrew Hall has predicted that risks in the residential development finance sector will continue to increase this year amid a challenging macro environment.
Hall, who co-founded the peer-to-peer residential development lending platform, said that there is “a distinct air of caution” flowing across the property sector, among valuers, lenders and agents.
“Thanks to our property expertise, we continue to fund a variety of projects at any stage – but given the currently challenging environment, risk profiles are inevitably increasing,” he said.
“At the same time, so too is the management of risk.
“Overall, there is less traction, less activity and, as it has been widely reported, less housebuilding activity.”
Read more: CrowdProperty: Property developers bullish on 2025
Hall expects market valuations to decline by another four to five per cent this year before flatlining in 2025, and then starting to pick up again in 2026.
However, he said for this to happen, inflation needs to be under control, mortgage rates need to be at 4.5 per cent and the base rate at 3.5 per cent.
Additionally, Hall said that profit on cost will remain a valuable financial barometer this year.
“All developers want their projects to deliver some form of a return, with profit on cost remaining the most effective way of identifying project value from the outset,” he said.
“In the current climate, deals are likely to be scrutinised more closely by lenders to ensure they will still stack if another spike in rates were to occur. The level of profit on cost should be assessed per project – there is no use applying a minimum percentage across all projects as this impacts each development differently.”
At the start of January, CrowdProperty reported its most profitable year to date in its latest annual results. The firm posted operating profit of £1.184m for the year ended 31 March 2023, up from £377,000 the previous year.
