Have you ever wondered whether your land may be of value to developers? And if so, how to make some money out of it? Whether you own farmland or a large garden, bought a plot of land as an investment or have come into an inheritance, you will be pleased to hear that housing development land has never been in greater demand.
We all know why – there’s a national housing crisis on! This means that local councils are actively looking for more land for residential development, putting you in a great position to take advantage of the commercial opportunities of selling your land. Here are four things you need to know about selling land for housing development.
- Is your land suitable for development?
Before you get carried away with the prospect of significant financial gain, the first question to get clarity on is whether you have the ‘right’ sort of land that developers might be interested in. Let’s just say that if you own a field in the middle of one of Britain’s 15 National Parks, the site is less likely to be suitable than if your asset is a disused urban plot. That said, cases are very rarely clear cut, so always double-check your assumptions by speaking to an industry expert.
A planning consultancy or land development agency should be your first port of call. Some may offer free initial advice, others may charge you for a detailed planning appraisal. The latter can be a useful tool on a site where the suitability for development may not be that obvious and may first need to be established.
2. What are the first steps to sell your land?
Whether you are selling your home or a plot of land, professional advice and guidance is a must. According to this property expert, there are 11 steps to getting your land sold, from the initial assessment of your land’s potential through to close cooperation with your land agent to close the deal. Put bluntly, when it comes to land sales, the layman simply doesn’t have the necessary commercial experience or technical knowledge to be a match for professional teams negotiating on behalf of seasoned housebuilders.
In order to get the best deal for your land, you should find yourself a knowledgeable land agent that you can trust to represent your interests and who will guide you through the complex sales process with integrity and plenty of industry experience. Ask other landowners for references and recommendations and choose an agent who will work with you to create a marketing strategy that best suits your financial goals and the particular character of your land.
3. How much can you get for your land?
This is where it gets interesting. While a surveyor can give you an informed valuation of your land as is, its real value clearly lies in its development potential. Basically, the site is worth as much as a developer is prepared to pay for it, meaning the value of your land is proportionate to the financial return the buyer can achieve.
In practical terms, the value of a field with planning permission for residential development is calculated as the profit that can be made from selling the individual houses once they’re built. The trick to maximising the value of your land to you, the seller, therefore lies in working with highly experienced land professionals to identify the best land use and development that will be most lucrative for the developer and, by extension, for you.
4. How do you get planning permission for your land?
For the seller, the biggest financial gains are made by transforming a piece of land without planning permission into one with planning permission. Getting consent for the right scheme is crucial to maximise the land’s value. Often, developers will want to control the planning process themselves so it can be tailored to the exact product specifications, but it is possible (though risky) to get your own.
Below are the most commonly used mechanisms of sale for land transactions:
- Unconditional sale
The most straightforward way to dispose of your land and the quickest way to liquidise the asset is by way of an unconditional sale. That way, the land is sold without any conditions other than vacant possession on completion. However, selling the land without planning permission for the buyer to develop the site is unlikely to achieve the maximum value of the land for you. If you are confident that the buyer can make a profit, you may be able to negotiate an additional ‘hope value’, defined by the RICS as ‘an element of market value in excess of the existing use value, reflecting the prospect of some more valuable future use’.
- Conditional sale
A conditional sale subject to planning permission involves a contract whereby the buyer is obliged to pay an agreed price but only when he has succeeded in obtaining planning consent for the land (at his own cost). The land price achieved is likely to be higher than with an unconditional deal since there is much less risk to the developer. Conditional contracts can be useful because they bind both parties to the deal early on. However, deals like this can literally take years to complete, and sometimes never are. If an uncertain wait is not a satisfactory solution for you, you should seek to structure the deal in a different way. Exploring financing options with a reliable private money lender in Singapore can provide alternative solutions to help you navigate through such property transactions with greater flexibility.
- Option agreements
Option agreements are the most common form of land transaction. It is a way for landowners to realise an increase in land value but without having to get involved in obtaining planning permission. That risk is taken by the developer who has the option to buy the site at any point during an agreed period, either for a pre-arranged price or at reduced market value. Typically, the sale will be triggered by planning permission being received. Negotiating an option agreement will include agreeing to a percentage of the enhanced market value that is shared between the parties.
- Promotion agreements
Last but by no means least, land promotion agreements are emerging as a popular choice for both landowners and developers. This type of agreement may be viewed as a type of joint venture, with the aim of maximising the value of the land to benefit both parties. Once an agreed premium has been paid by the developer, he is committed to promoting the site for planning and obtaining consent. When planning has been granted, the developer will market the property and share the net proceeds of sale with the landowner according to a pre-agreed percentage split. A promotion agreement is best suited to a landowner who wishes to retain some level of control over the land through the sales process.