Is property development still profitable in 2023?

With rising inflation leading to increased mortgage costs and the wider cost of living crisis in the UK, many are wondering whether property development will still be profitable in 2023 and 2024. In this blog post, we’re going to explore whether property development still makes financial sense, and what we think may happen over the next 12-18 months.

The UK Property Development Market in 2023

Although there are plenty of issues in the property market, such as increasing costs, rising mortgage rates and falling house prices, property development continues to be a lucrative venture in the UK in 2023. There are still plenty of opportunities for profit generation.

Firstly, despite falling house prices, there is still a huge demand for housing in the UK across the rental and private sectors. The UK has experienced a shortage of housing for decades, especially in urban areas, and with a rising, ageing population, this only looks set to continue. Despite the difficulties, developers can capitalise on this demand by creating housing for a range of customers including first-time buyers, families, and investors. This is especially true in London and the commuter areas of the South East. Look to specialise on the niches where demand is strong.

Furthermore, initiatives like Help to Buy and shared ownership schemes provide financial support to potential buyers, expanding the pool of potential customers and ensuring a consistent demand for newly developed properties. Likewise, the peculiarities of supply and demand within the UK property market offer regional variations that savvy developers can exploit.

While demand remains high in major cities like London, smaller towns and rural areas also present opportunities. As remote work continues to be commonplace, some individuals are seeking properties in less densely populated regions, leading to increased demand for suburban and rural developments. Likewise, properties in traditional leisure areas such as the coast or near national parks represent great opportunities for holiday lets or second homes. For many, property development is still very profitable and viable.

New Build Property Development for a New Generation

Developers are also adopting innovative approaches to maximise space utilisation, energy efficiency, and sustainability to appeal to younger and more conscientious buyers. Modern designs and amenities cater to the preferences of the millennial and Gen Z populations, who are increasingly entering the housing market. Integrating smart technologies, green spaces, and communal facilities adds value to properties, allowing developers to target wealthier buyers.

In addition, the UK continues to be seen as a global financial and business hub which can help attract international buyers looking for secure investments. London and the South East, in particular, remain a top target for foreign investment and experience high demand for luxury properties and upscale developments. The stability of the UK’s legal and financial frameworks, along with its high-quality cultural and educational institutions, continues to make it an attractive proposition despite the aforementioned problems around inflation and cost of living.

2023 saw an increase in homebuyers looking specifically for new builds rather than period properties. Savill’s estimate that new builds save an average of 55% on energy bills over period properties, and this may be behind the increase of 7% in Q1 2022 compared to Q1 2021 for regional reservations, equating to an increase of 41% on Q1 2019. Likewise, the NHBC reported that record numbers of reservations for all new build house types were experienced in Q3 2022, showing a 114% YoY increase on the previous year. Many of these reservations were for new build apartments in London.

As energy bills and the cost of living continue to impact household finances, those looking to buy may be spurred to look at energy-efficient new builds that can help reduce their monthly outgoings. Property developers who can capitalise on this trend may be in a position to create healthy profits.

While not as booming as may have been a few years ago, property development remains profitable in the UK in 2023 due to a combination of factors. Persistent housing demand driven by population growth, government initiatives, strong international investment and a focus on green, energy-efficient homes all contribute to this profitability.

At Hunter Finance, we’re experts in providing property development finance to a range of customers across the South East. Contact us today to discuss your needs and how we can help fund your next project.