Why Coverting Commercial Property To Residential Homes Is In Vogue At Present
One of the most innovative ways to profit from buying a commercial property is to convert it into residential homes. Rather than taking out a commercial mortgage to buy property to let to a business, many investors buy empty commercial property with a view to converting it into a large home or a number of self contained properties.
One prime example that can be used is the Victorian terraced housing in city centres across the UK, have been converted to offices for solicitors and for other office based companies. Where they can, commercial landlords are buying the property and converting it back to housing, with a housing shortage and city centre housing always being profitable, it can be a win win situation in certain circumstances.
While it can be profitable, getting to that point is in itself a mission, red tape and planning laws can throw up too many obstacles by themselves. But a lack of commercial property finance just adds to the headache of many commercial landlords who can get lost in the maze created by both problems.
Even now in 2011, three years after the Credit Crunch began commercial finance is difficult to acquire for entrepreneurs. Even the institutions that were not bailed out by world governments have seen the money they can lend drastically reduced as they reign in their liabilities, which in turn has not helped the economy kick on as money has not been available for commercial mortgages or other types of commercial finance.
The already high Loan To Value Rate (LTV) before the recession was high; usually being 70 75% minimum is now on average hovering around the 60% LTV mark. Meaning if you do not have a deposit of 40% to put up, your chances are very low of securing finance, commercial property or conversion project, it is the same rate for everybody.
Over the last decade, a painfully complex and time consuming planning process has also prevented many new homes in the UK being constructed. Now the Government has decided to make life easier for developers who wish to convert commercial properties into new homes. This has become essential as part of the initiative to bridge the chasm between demand for residential property and a chronic shortage of new homes.
The BBC recently reported that between 7 and 9 per cent of all commercial property in the UK was currently vacant whilst just 129,000 new homes were built in the UK in 2010 the lowest peacetime figure since 1923.
In a bid to alleviate this problem, the Chancellor, George Osborne, stated in the recent Budget that he would scrap the requirement that property developers get planning permission to transform vacant office blocks, warehouses and business parks into housing. It is anticipated that this will allow the speedy development of new residential dwellings. Ministers hope that the scheme could create approximately a quarter of a million additional houses or flats and could save GBP140 million in bureaucracy costs over the next decade.
Industry body the British Property Federation (BPF) gave clear support to the plan to limit bureaucracy. Liz Peace, chief executive of the BPF said: “Whilst clearly we would not want to see property that might still be capable of sustaining jobs taken out of commercial use, there are many places where business will never come back and it makes huge sense to look at alternative uses, particularly residential where there is a massive need for new sources of supply.”
So, if you have been put off before from investing in commercial property to convert to residential use, now could be the perfect time to revisit those ideas. Commercial mortgages are once again becoming more widely available and changes to the planning legislation should soon make the whole process that much easier.
Howard O’Gollegos writes for Just Commercial Mortgages the UK’s No1 site for the latest commercial mortgage rates and commercial property finance news.
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