Article

Property Development - Market Mechanisms

 

By Richard Walford

News this week of the cooling London residential market spreading to the South East. 

No need to panic but a good reminder for developers to review how well guarded they are against any future market trends.

A feature of recent market downturns has seen savvy developers shifting their emphasis from building out schemes to stocking up their land banks. Although this may appear counterintuitive, using market mechanisms in property options and conditional contracts is a good means for developers to increase land supply during times of uncertainty in a way that mitigates against the risks of market failure. 

Mechanisms to consider include:- 

-planning and promotion timescales and obligations that are sensitive to market conditions

-market value pricing 

-upward and downward price adjustments (these could be linked to market indices, building costs or even both)

-extension of time limits (postponing initial exercise/purchase of subsequent phases until return of an upward market)

-financial viability conditions

-deferred completion dates

-deferred consideration payment dates

-overage and clawback

All of these may seem a threat from a landowner/investor perspective. However, good developers will work hard to build long term trust with their landowners/investors, helping them to understand the importance of having sensible market measures in order to facilitate successful property development over the longer term. 

Savills warns of 'cooling measures' in global property market after strong first half The global property market faces a number of “cooling measures” this year that could reduce the number of transactions, according to Savills, even as its profits jumped by a quarter. The real estate agency said that measures introduced by the Hong Kong government to quell its property market were likely to hurt the firm’s figures in the second half, while the British residential market continued to face uncertainty in the aftermath of the Brexit vote. In the UK, commercial property transactions appear to be holding up while the residential market shows signs of slowing. Savills said its revenue from UK transactions across the sectors was up 5pc, driven by a 23pc rise in its commercial business. However, its residential transactions for the same period slipped 4pc.
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