Challenges and opportunities in a property boom: words of wisdom from a property developer
The property landscape has boomed, with plenty of developers making big money, fast. But this boom has provided a number of new challenges, as well as opportunities for those savvy enough to spot them.
Managing Director, Stephen Scutts of Castlerock Capital shares the five major challenges facing property developers in the current market, and opportunities to succeed in this evolving market.
1. Competition is only rising
The surging property market has brought big success to newcomers, with plenty of people in a position to throw around money. In a hot market, it can be easy to fall prey to the frenzy and pay too much for a site.
“It’s the old adage, the profits all in the buying,” Stephen said. “We know what we can build it for, we know what we can rent it for, the money is all in the buying of the site. And that’s hard at the moment.”
But there are still plenty of opportunities if you know where to look. Stephen said it is critical to stick to your criteria. “We don’t want to be one of the 8/10 that goes broke, so we’ll pick our marks.”
2. There’s not much land
If you’re looking to develop in the inner-city, you need to be smart about it.
“The challenge is finding land, there’s not much anymore,” Stephen said. “We compete against the other developers who are trying to either, do what we’re doing or residential. Because they can afford to pay more for the land than we can, we’ve got to be nimble and quick.”
Stephen turns this around by finding and buying off-market. “Personally, I like hunting around for the sites, walking the streets and looking for blocks of dirt and trying to figure out what we can do with them,” he said.
3. The dollars are getting bigger
A booming market means there’s more money to be made, but you also need a bigger bank to play.
“The dollars are getting bigger,” Stephen said. “What was $2m three years ago is now $4m to buy in terms of land. It’s hard, but there are opportunities, you’ve just got to work a bit harder.”
In this environment, financing is critical, and finding a trustworthy and experienced financial consultant and broker like Development Finance Partners (DFP) is more important than ever.
4. Evolving planning laws
The Government is constantly making changes to planning laws, which presents both challenges and new opportunities for developers.
“It’s not easy, you’ve just got to keep up to date with planning these days,” Stephen said. “There have been some good changes in seniors living, providing some opportunities. We try to find unique sites that someone hasn’t seen or we try to put a different spin on it.”
5. The banks are stricter
It’s no secret that banks’ lending criteria and terms have been getting stricter, which is why it’s increasingly important to have a finance expert like DFP on your side.
“The banks have been harder,” he said. “If you or I are buying a house, they’re happy to go to 80% with a couple of valuations from a valuer, but trying to do commercial developments for a big residential project, they’re tough.”
Stephen recently partnered with DFP to refinance his Newtown student accommodation project, Castle Student Accommodation.
“Initially we were going to fund through a bank, we had an offer from one of the major banks and I took that same offer to Development Finance Partners and they provided, in my opinion, the best solution,” he explained. “Less equity in, in fact, a better interest rate than we were getting from one of the major banks too, and a lot more flexible.”
Development Finance Partners are experts in property development and construction finance, providing complete end-to-end tailored solutions.
Speak to us today to find out more about we can help you with funding solutions for your next project.
To chat about your next project and find out how we can help with property development and construction funding, book a discovery call.
For expert advice:
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