- Allied Leasing Corporation
Why Coverting Commercial Property To Residential Homes Is All The Rage At The Moment
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.
Over the last few years, buying commercial property to convert hasn’t been easy. The planning process has been lengthy and complex in many cases whilst there have also been well publicised problems with obtaining the commercial mortgage finance needed for such a project.
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.
As well as restricting commercial mortgage lending, banks have also reduced their maximum ‘loan to value’ (LTV). Businesses and investors have therefore had to commit a much higher deposit from their own funds as banks have typically restricted lending to 60-65 per cent of the purchase price.
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.
Only a 129,000 new house were built in England in 2010, the BBC recently reported, which is the lowest number built since the 1920’s (outside of WW2). In the same report the BBC highlighted the fact that 7-9% of all commercial property in Britain lies vacant.
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 £140 million in bureaucracy costs over the next decade.
Industry body the British Property Federation (BPF) hailed the plan to relax the planning rules for developers. chief executive of the BPF Liz Peace 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.”
The Government’s plans to scrap the need for planning consent should make it much easier for developers to convert empty commercial premises into new homes. With commercial mortgages becoming more widely available, this could be an excellent answer to the shortage of new homes in the UK as well as tackling the problem of empty commercial units.
Timothy Frodsham writes for Just
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