So what needs to be on the ‘health check’ list for the
residential sector in this period of transition?
Having a controlled operating overhead which is
transparent.
Efficiencies are maximised and the balance between in house and
external cost base is optimised. Organisational design has to be
lean and efficient but not decimated to prevent scalability in the
future. Some M&A activity in recent years has led to sub
optimal corporate structures that are not fully
integrated/refined.
Seriously reviewing supply chain initiatives and
innovative sourcing.
This is not the same as unilateral cost cutting
imposed on suppliers but adopts a more sophisticated approach to
understanding, even in a contracting spend market, where you can
maximise buying leverage. It can also pay to apply a real strategy
to overseas materials sourcing relative to the current volatile
international currency exchange rate patterns. The Euro zone is not
a place to be importing from if the same product exists in the US
for instance.
Review product for the current market - not one that
existed 2-3 years ago!
The so called ‘new build premium’ is no longer
tenable unless there is something special about the offering
relative to existing stock. The only way of facing the market is
understanding the dynamics of change, what is becoming clear is
that pitching the product at the new build buy to let sector may
now be a flawed business plan.
Understand the potential of maximising the short to
medium term uplift in private rental demand by ‘build to
let’.
The real trick for the future is to innovate a business case for
deliberate asset retained delivery that can tap into this market
which is being driven by the uncertainty around entering owner
occupation. The government has a role to play here in incentivising
activity linked to the planning system as well as possible tax
efficient vehicles. If outright house ownership alone is not going
to achieve 3 million new homes by 2020, how can a private rental or
extended shared equity market support it?
Pre-empt the due diligence required now by most
funders.
To get past credit committees prior to seeking the funding -
don’t waste time on ‘dead duck’ deals. The key now, more than ever
before, is location, differentiation and robust appraisal and
business plan assumptions.
Reviewing and mitigating potential Section 106
obligations.
Maximising negotiations around tariffs imposed on affordable
housing and other community benefits. The private sector is the
enabler for the government’s new homes agenda - without viability,
there will be much reduced delivery so a serious review of planning
liabilities is not ‘off limits.’
Maximising the benefits of partnership with Registered
Social Landlords.
Some innovative models are being implemented that share risk and
reward between a newly dominant RSL sector and the pressurised
house builder sector. This is not the same as a ‘fire sale’ of
unsold stock to RSL’s. Any informal ‘Housing Market Package’ type
initiative as seen in the early 1990’s will increasingly be taken
up by RSL’s through access to land and development opportunity
(shared or otherwise), not cash hungry distressed stock
disposals.
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