Developers face a credit crunch
DEVELOPERS FACE A CREDIT CRUNCHÂ
(This article appeared in the NEP, 14 November 2007)
Nottinghamshire’s property industry could face a tougher time persuading banks to back big projects because of the credit crunch, experts say.
The development industry has thrived over the past few years with banks funding large-scale schemes because a buoyant property market meant profits were easy to come by.
But doubts about banks’ exposure to the international credit crisis has seen signs emerge that money will now be harder to come by. Regeneration bosses insist the city should still be able to find backers for major schemes provided they can demonstrate demand.
The news emerged as property professionals gathered in Nottingham at a conference that put the region’s regeneration efforts under the spotlight.
The East Midlands Regeneration Conference at the Conference Centre heard details of a series of projects across Nottinghamshire and beyond.
They ranged from the Meden Valley Making Places Project, which has revitalised disadvantaged former pit communities in North Notts and North Derbyshire, to Nottingham’s flagship Waterside scheme.
The Waterside scheme is expected to make progress on its first major phase next year, when a design competition is launched for a new riverside community in Trent basin, with developer Isis having already received outline planning consent.
But the developers will be trying to make progress against a background of tougher financial conditions that are expected to see banks and property investors look much more closely at new proposals before they decide whether or not to back them. This could see banks and investors refuse to back some schemes or loan money on tougher terms.
Richard Beverley, real estate partner with city law firm Freeth Cartwright, said lenders were already “taking a harder look” at projects.
“The market has been very strong for the past five or six years, and even if projects haven’t gone well it has still been possible to turn a profit because of increasing land values,” he told the Post.
“We’re now in a period where the market is likely to see either slow growth or even no growth. That means the only way to generate a profit on a project is by the value your scheme adds. That means getting the right sort of planning permission and building the right sort of product. With profits on property at a lower level, demand for speculative and risky schemes could fall away”.
He said: “One of the major housebuilders is already rumoured to have said that it will not be building certain types of property. But one of the consequences of this situation is that good developers will continue to do as well, if not better than they have before. For those people who are good and experienced at what they do there will be opportunities as those people who are less experienced and less good at what they do seek to offload property.”
He added: “Banks are in the business of lending money and charging fees and interest, so they will still want to lend. But they may take a more conservative approach to the size of the loan compared to the value of the project.”
ends - 15 November 2007