Small Developers and Self-Build: A New Path to Viable Sites in the UK?
With viable development sites becoming increasingly scarce, many small and medium-sized developers are looking for alternative avenues. Could the 'self-build' and 'custom-build' market offer a promising solution? Let's explore the complexities beyond just CIL payments.
The UK housing market is constantly evolving, and for small and medium-sized developers, finding suitable land for traditional projects can feel like an uphill battle. Planning constraints, land banking by larger firms, and escalating costs all contribute to a challenging landscape. This scarcity has led many to cast their eyes towards the burgeoning self-build and custom-build sector, wondering if it presents a viable new frontier for their expertise.
Understanding the Self-Build and Custom-Build Landscape
Firstly, it's crucial to distinguish between 'self-build' and 'custom-build'. While often used interchangeably, they represent different levels of involvement for the end homeowner:
- Self-Build: The individual commissions or manages the entire build process themselves, from design to completion.
- Custom-Build: A developer provides a serviced plot and often a 'shell' or partially completed home, with the homeowner then customising the internal layout and finishes.
For developers, the custom-build model is generally more appealing, as it allows them to leverage their construction knowledge and economies of scale, while still offering the buyer a degree of personalisation that is highly sought after.
Beyond CIL: The Realities for Developers
Many developers might initially think that entering this market is as simple as acquiring a plot, building a customisable home, and then paying off the Community Infrastructure Levy (CIL) upon sale. While CIL is a significant consideration, the reality is far more nuanced.
1. Planning Permission and Local Authority Registers
Local authorities are mandated to keep a register of individuals and groups interested in self-build and custom-build plots. This creates a demand-side picture, but developers still need to secure appropriate planning permission for their custom-build schemes. This often involves demonstrating how the proposed development meets the specific needs and preferences of those on the local register, or how it aligns with local plan policies supporting custom and self-build.
2. Design Codes and Customisation Levels
Unlike speculative developments where a developer dictates the final product, custom-build requires a flexible approach. Developers might need to establish a 'design code' for the site, setting out parameters for external appearance, materials, and massing, while allowing for internal customisation. This balance can be tricky to manage, ensuring aesthetic coherence for the development while providing genuine choice for buyers.
3. Funding and Finance
Traditional development finance models may not perfectly align with custom-build projects. Lenders often prefer the certainty of a pre-sold unit or a fully completed product. Developers might need to explore specialist finance options or structure their projects to allow for staged payments from buyers as the build progresses, which requires careful legal and contractual arrangements.
4. Marketing and Sales Strategy
Selling custom-build units requires a different marketing approach. It's not just about showcasing a finished home; it's about selling a vision, a lifestyle, and the opportunity for personalisation. Developers need to clearly articulate the level of customisation available, the build process, and the benefits of a bespoke home. This often involves detailed brochures, virtual tours of potential layouts, and a strong emphasis on the buyer's journey.
5. Legal and Contractual Complexities
The legal framework for custom-build sales can be more intricate than standard new-build sales. Contracts need to clearly define the developer's responsibilities, the buyer's choices, payment schedules, and dispute resolution mechanisms. Engaging with experienced legal professionals is paramount to ensure all parties are protected.
6. CIL and VAT Implications
While self-builders can often claim an exemption from CIL, this typically applies to individuals building their own primary residence. For a developer building units to sell, the standard CIL rules will apply, and this cost must be factored into the project's viability. Similarly, VAT on new-builds is zero-rated, but the specifics for custom-builds, especially where the buyer is involved in the build process, need careful consideration with tax advisors.
A Promising Avenue, But Not Without Its Challenges
For small and medium-sized developers, the custom-build market certainly offers a compelling opportunity to access viable sites and meet a growing demand for personalised homes. It allows for agility and a more direct relationship with the end-user, aligning well with the ethos of an independent, local estate agent like Kallars.
However, it's not a simple 'pay CIL and sell' scenario. Success in this sector requires a deep understanding of the unique planning, financial, legal, and marketing considerations. Developers who embrace flexibility, clear communication, and a buyer-centric approach are most likely to thrive.
Thinking of selling? Get in touch with Kallars today — we'll guide you through every step.