| With the housing market relatively flat, this might seem to be an unlikely time to consider moving into property development. Despite the gloom at estate agencies, Britain’s mania for renovating houses – judging by the number of television shows devoted to the topic – remains unabated. It is easy to dismiss this as a symptom of the disbelief that the long boom is over, and it does seem very unlikely that prices will rise by a great deal in the near future. Indeed, the days of being able to make a great deal of money from property without much in the way of intelligence or effort are probably over, for the time being at least. But that doesn’t mean that the canny investor or developer can’t still make a profit. Commitment Anyone thinking of developing property in the current economic climate must be prepared to commit long-term. In the short-term, rents – no matter how effective your renovations – will not be sufficient to cover the interest you would pay on a loan. Even if you’re buying outright, the income from rent might not even match the far more secure income you could obtain from other investments. Given the weak market, capital values – prices to the everyday person – are unlikely to rise enough to cover the cost of renovating an existing property. Long-term, there are still pressures forcing house prices up. The UK population is growing and more of us are choosing to live alone. Meanwhile, there is a lot of public disquiet over plans to build on more green fields, meaning that demand will continue to outstrip supply for at least a decade. There is, of course, no guarantee that the market will remain flat. If interest rates fall further, things could spring back to life – but even normally optimistic pundits, such as the RICS and the Council of Mortgage Lenders, are not betting on it. A developer or investor will need the guts to ride out any weakness, until the boom times arrive again. Future trends There is also another factor to consider. Most of the country’s most successful developers have built their fortunes on spotting the 'bottom of the market' and buying when everyone else is desperate to get out. Alternatively, they’ve been able to spot an opening or a potential new trend – such as the conversion of warehouses or large Victorian houses into flats – and jump on the bandwagon before the rest of the public. Development over the past few years has resulted in vast numbers of one and two-bedroom flats flooding the market, with most snapped up by investors. Family homes are not being built, and yet, perversely, are most in demand. Some commentators are convinced that a two-tier market could emerge, with flats abundant and cheap but family homes in short supply. This is the main reason why many of the organisations specialising in advising aspiring property entrepreneurs are now arguing that it is houses, not flats, which should be attracting your attention. In London alone, there are over 100,000 homes standing empty, mainly because they are derelict or otherwise substandard. Some are in unsavoury areas, but others have simply been neglected. The challenge is to find these properties and bargain the owners down to a price on which it is possible to make profit. This might be simpler than it sounds. At the moment, houses are ‘sticking’ as vendors are not prepared to lower their prices to the point where buyers are prepared to buy. If the market weakens further, it will be even more of a buyers’ market, and finding bargains could be child’s play, as long as you have the equity at hand. Commercial property Commercial property, which has taken a backseat to residential as values have boomed, could also be an option for the smaller developer. The most obvious strategy in this asset class is the conversion or refurbishment of small retail premises on the less glamorous high streets, the popularity of commercial property among institutions and other big-money investors makes anything else rather unfeasible. The potential for returns in the form of rent is substantial, but the fact that businesses can go bust makes it a rather more risky investment long-term than the residential market. No idea, or amount of trend-spotting, can be a substitute for a proper business plan. A comparison with other, already refurbished properties in the same area or comparable areas can provide data on achievable rents or values. Estimated costs for raw materials, labour and capital will also be essential. Any article on property must emphasise that any investment can decline as well as rise in value. Bear in mind, today’s success stories have made their initial victories in difficult and risky markets.
| 
