If you have a site that you think might be suitable for a new housing development, you might consider selling to realise that value – but that might not be as simple as it sounds. In this post, we explain how you can go about it.
There are three main ways you can approach selling a piece of land. Let’s consider each in turn.
1. Sell it as it is, without planning permission.
This is the quickest way to get a receipt, but it’s also the option that will result in the lowest value. Any buyer would be investing their money in the hope that they would be able to secure a planning permission in future.
No matter how likely you think it is that planning consent will be granted, there is still risk involved. How many homes will permission be granted for? What infrastructure improvements will the council need? How quickly will the permission be granted?
There are also plenty of examples of sites that looked certain to secure planning permission, but then policy changed and the chance was lost.
All those risks are considered by potential buyers when they make an offer. The price they are prepared to pay is therefore somewhere between the site’s value for its existing use and what it will be worth with a planning permission.
2. Sell it on a “subject to planning” basis.
One way around that challenge is to agree to sell the site provided that the buyer secures planning permission first. This is usually known as a “conditional contract.”
The uncertainties involved in securing a planning permission remain, but the buyer knows that, if they are unsuccessful, they won’t have to buy the site. Since that reduces the buyer’s financial risk, it increases what they’re prepared to pay – it’s common for house builders to offer to buy land in this way.
Because it takes time to prepare a planning application and get permission, selling a site on a subject to planning basis can take some time. The timescales involved also mean that there is sometimes little urgency from developers when they are preparing their offers. If it’s likely to be three years before they can sell homes from the site, they know there is a chance to find an alternative site if they don’t buy this one.
The buyer will also have made some assumptions about what they think they will get planning permission for. They will expect the sale contract to reflect those assumptions and allow them to walk away from the deal if they get a planning permission they don’t like.
3. Sell it with a planning permission
By getting your own planning permission, you can remove much of the planning risk for developers. The best way of doing that is usually to secure an outline planning permission, which approves the principle of housing on a site, but allows some detailed matters to be decided in future.
Structured in the right way, an outline permission can provide the certainty that developers need, but still leave flexibility for them to impose their own business models on a site – especially the design and mix of homes. That helps to maximise interest in a site when it is marketed for sale.
If a site is packaged up with the right technical reports about ground conditions and drainage (which often aren’t needed for planning), you can make a site “shovel-ready.” That means a developer can start work very quickly. Shovel-ready sites attract a premium when they’re sold since developers don’t have many alternatives. If they need to start on a site in the next 12 months, they can’t try to buy one of the many pieces of land that doesn’t have planning yet – they need to buy one of the smaller pool of sites that does have planning.
Applying for planning permission can be a very expensive and complicated process – it typically costs between £100,000 and £300,000 depending on the size and complexity of the site. For very large sites, the costs can even reach seven figures.
Where land promoter’s fit in
This is where land promoters can help. As we explain in this post a land promoter will work to secure planning permission on behalf of the site owner. The promoter will cover the costs and provide their expertise entirely at risk – if they don’t succeed, it doesn’t cost the owner a penny. Instead, the land promoter takes a share of the value of the site once it is sold. That means that their objective is the same as the land owner’s – to maximise the value of the site. As a consequence, even after the land promoter takes their share, the owner often ends up with more money than they would have if they’d sold the site to a developer earlier in the planning process.
Ultimately, the route you take to sell your site will depend on your own circumstances. Everyone will find a different balance between the speed of the sale and the price a site sells for, and everyone will have a different view on how much of their own savings they are prepared to risk.
The Strategic Land Group is a land promoter with an established track record of maximising land values. You can learn about some of the sites where we have used that approach here. If you know of a site that you think might benefit from our involvement, please don’t hesitate to get in touch for a confidential, free, no obligation assessment.