Ground-up builds refer to the development of brand-new buildings on undeveloped land. It can be highly profitable, but that is only the case if you have a dedicated plan and do it at the right time, and in the right place. So, is now the right time to start a ground-up build, or should you focus on other projects for now? Here are some insights on key considerations:
Developing ground-up builds has a number of perks, including:
Customisation freedom: With a ground-up build, you have complete control over the end result of the property. You can take any vision (within reason) and bring it to life!
Modern infrastructure: With a ground-up build, you are not held back by old buildings and materials. Instead, you can build everything with modern infrastructure, leading to a highly modern build that is up to contemporary standards.
Low maintenance: Older buildings often require more upkeep due to prolonged wear and tear, whereas brand-new buildings typically do not need as much maintenance.
While these benefits are undeniable, that doesn’t necessarily mean you should jump headfirst into a ground-up build project without first conducting proper research and figuring out your own financial situation.
Reasons to consider starting a ground-up build
At present, the UK and global economies are facing significant challenges. However, on a local and regional basis, there will be opportunites for developers to achieve a profitable outcome.
UK economic growth: The UK has had a stronger-than-expected Q1, which is a good sign for further growth in 2025.
Mortgage rates are expected to decrease: Getting development finance means factoring in interest rate changes. There is the expectation that base rate cuts are going to reduce these later in the year. The Bank of England aims to keep inflation under control in the face of global economic shocks.
Local industry offers potential: News around the world may be worrying, but there will always be opportunities for smart investors to take advantage of. The government has high targets for housebuilding, which will need to be supported by essential amenities, such as shops, schools and surgeries, all of which will need to be built.
Risk assessments
So, what about some of the potential risks? To ensure that your project remains profitable, here are some things you need to think about:
Material and labour costs are high: Right now, the cost of materials and labour is quite high, and this is a significant cost when it comes to ground-up builds. But if you work with a team you know and trust, and you have done due diligence on quotes, you can budget effectively.
Skilled labour shortage: Unfortunately, there is a significant skilled labour shortage in the UK right now, which could impact finding affordable workers, such as builders and project managers. First-time developers may find this more of a challenge to overcome than experienced developers with established teams supporting them.
Geopolitical events: There is always the risk that unpredictable geopolitical events can impact costs, including supply chains and energy prices. For this reason, making a detailed plan and having an adequate contingency budget is vital.
Personal considerations
You should also take into account some personal considerations.
For example, each development finance lender has different criteria you will have to meet, including the amount of experience you have in these types of projects, the amount of capital you will have to put down (a minimum of 35-40% of the site’s/land’s value), loan to value, potential gross development value of the project upon completion, and your exit strategy.
These are some of several factors that influence the funding you can get. If you have secured financing, have a well-planned project, and have a great team (including architects, builders, and project managers) behind you, you are more likely to do well.
Due diligence is the key to success
Deciding whether to invest in a ground-up build right now will take a high level of thought and planning. Development finance can achieve outstanding profit in a relatively short timeframe, as long as your costs are carefully managed to ensure that when you come to sell – or long-term invest – you are in a strong financial position.
Over the last couple of years, development finance interest rates have not been subject to significant fluctuations compared to the mortgage market, which will help with calculating the cost of your project.
If you take all of the above into careful consideration, you will be able to approach a ground-up build project from a point of strength.
