Property development could see a shift with the introduction of new planning laws announced by Chancellor Jeremy Hunt in his Autumn Statement. This shift opens a lucrative avenue for landlords and developers, presenting an opportunity to significantly enhance their income through property conversions.
Understanding the New Permitted Development Right (PDR)
PDR is a government initiative that allows property owners to undertake certain types of development without the need for a full planning application. It’s designed to streamline the process for minor modifications that have minimal impact.
The Latest Announcement
The Chancellor’s statement introduced a new PDR, allowing the conversion of a house into two flats without external alterations. This could come into effect next year, subject to a consultation process.
Potential Benefits for Property Owners
Increased Income for Landlords
Landlords may see an opportunity to boost their income by converting buy-to-let properties into two flats. This not only provides additional rental income but also meets the high demand for rental accommodations.
Addressing the Rental Property Shortage
With a decrease in available rental properties and rising rents, this change could provide much-needed housing options, particularly for first-time buyers and those looking to downsize.
A Boon for Developers
Developers stand to gain from the ability to create more homes efficiently, tapping into the market of smaller residential units.
Rental Market Dynamics
Rental prices have been rising steadily, with a reported 10% increase outside London and a 12% rise in the capital. This trend underscores the potential for higher rental yields from converted properties.
The Impact on Property Values
The average value of terraced houses and flats indicates a significant opportunity for profit, especially if a property is converted into two flats before selling.
Rental Yields and Property Types
Different property types yield varying rental incomes, with houses in multiple occupations (HMOs) currently leading in rental yield percentages.
Considerations Before Converting
Engaging with local estate agents to understand market demand is crucial. It’s important to identify the types of properties in high demand in your area.
Cost Analysis
The cost of conversion varies significantly based on location and property size, ranging from £25,000 to £80,000. This investment should be carefully weighed against potential returns.
Legal and Spatial Constraints
Consider the minimum space requirements for flats and whether your property meets these standards. Also, anticipate any potential pushback from local councils due to the bypass of standard planning procedures.
Challenges and Operational Aspects
Timeframe and Planning
Preparing for a conversion involves architectural planning and potential delays in obtaining permissions. The entire process, including construction, could take several months.
Tenant Displacement
If you currently have tenants, you’ll need to consider the impact of them moving out during renovations, which could affect your rental income in the short term.
Assessing Property Suitability
Not all properties are suitable for conversion, especially considering spatial restrictions and local council regulations.
Conclusion
The introduction of new permitted development rights presents an exciting opportunity for landlords and developers to increase their income and contribute to solving the housing shortage. However, it’s essential to approach this opportunity with a comprehensive understanding of market demands, costs, and potential challenges.