Property investors could take advantage of Permitted Development Rights (PDR) to reap rewards from creating homes from non-residential stock without having to navigate laborious planning permission processes, an advisory firm claims.
Excellion Capital said that while it looks increasingly unlikely that the Government is going to be able to honour its new homes pledge with new-builds alone, they might have to look at alternative avenues of increasing supply.
One such avenue could be Material Change of Use.
Excellion Capital has analysed change of use data from the UK Government and found that across England last year, 21,591 non-residential properties underwent a change of use to be converted into residential dwellings, marking an annual decline of 3.1%.
But for property investors who are looking to take advantage of the opportunities presented by Material Change of Use, the process of obtaining the required planning permission can be laborious, lengthy, and often expensive.
However, there are opportunities for investors to change the use of non-residential property without having to obtain planning permission, and this is through PDRs, Excellion Capital said.
It lets individuals and developers make certain changes to buildings or land without the need to apply for, and obtain, planning permission.
Excellion Capital said this means that non-residential properties which hold PDRs under planning law can be converted into homes far more easily than those which have to undergo a Material Change of Use.
Excellion Capital’s analysis of change of use PDR data reveals that before the pandemic (2019-20) 12,375 residential properties in England were created through change of use PDRs. Covid saw the total fall to 9,990 in 2020-21, before bouncing back to 10,340 the following year.
However, last year, just 8,825 residential properties came via PDRs, marking an annual decline of 8.3% and the lowest number since at least 2019.
In some regions, however, it appears that property owners and investors have started taking much greater advantage of PDRs.
In Yorkshire & Humber, the number of residential properties created through PDRs soared by 132.2% in the past year. In the East of England the numbers rose by 32.2%; the North East saw a rise of 13.4%; and the East Midlands saw an increase of 5.5%.
Robert Sadler, vice president of real estate at Excellion Capital, said: “PDRs provide a great way for property owners and investors to convert struggling assets into new homes without the need to secure planning permission. This makes for an extremely fast project turnaround time, which can be highly attractive to lenders who often see PDRs as a low-risk venture with fast returns. As the Government pushes to meet its heady new home delivery targets over the next five years, PDRs could play a central role, especially in those places where land and space is limited.
“There is also currently tremendous availability of relatively low priced debt for residential projects, which means, in the right hands, there are some incredible opportunities just waiting to be unearthed with PDRs.
“It is strange, therefore, that the number of instances where PDRs are being used to create new homes has fallen over the past year. A recent survey of ours reveals that high interest rates were the most pressing concern among property investors in the UK, so perhaps the falling number of PDR instances is because high interest rates required lower leverage and ultimately meaning more equity was required.
“But now that interest rates are trending downwards, a previously high interest environment shouldn’t be enough to put investors off taking advantage of great opportunities when they arise.”
This article is taken from Landlord Today