PropertySep 27 2021

Property investors look to commercial to get around planning rules

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Property investors look to commercial to get around planning rules

Property investors, including buy-to-let landlords, have spied a loophole in the planning permission process to get around roadblocks currently bottle-necking the residential planning system.

Over the last five years, a quarter (25 per cent) of property investors have bought houses they intend to convert or carry out works on, only to be denied permission, according to research by property data firm SearchLand.

But it also found 31 per cent of property investors are considering commercial and semi-commercial properties which could then be converted into residential premises.

Converting commercial property to residential does not require full planning permission if certain conditions are met. 

“Many investors [are] now looking to potentially convert commercial properties into residential premises,” said Hugh Gibbs, SearchLand’s co-founder.

“The rise of remote working has lessened demand for office space, leaving many commercial buildings empty – understandably, investors are considering whether this could present them with new opportunities.”

Gibbs explained the viability of obtaining planning permission “is becoming a major stumbling block” for investors – and likewise developers – when it comes to the residential market.

“The current refusal rate carries far-reaching implications for the businesses who we depend on the most to bring forward new homes.”

He added the number of property investors denied planning permission over the last five years was “particularly concerning”, considering the expected U-turn on the government’s much-awaited planning reforms under new housing minister, Michael Gove. 

Published last year, the reforms had set out to reduce the power of local councils to deny developments so as to speed up delivery of new houses amidst the backdrop of a supply and demand crisis.

But according to reports last week, the reforms are set to be scrapped or watered down after backlash from Conservative MPs. 

Gibbs’ firm analysed 175,413 planning applications between September 2016 and September 20201 for residential schemes spanning 512 property investors, all of whom owned two or more properties in the UK - the majority of which owned under five. 

It found 40 per cent of property investors said the viability of obtaining planning permission was “a major stumbling block” when searching for a property to invest in.

And SearchLand’s own data showed 24 per cent of applications for new build residential schemes of one or more units were refused over the last five years, matching the experiences claimed by property investors.

But despite the planning hurdles faced by these investors, close to half (44 per cent) said they intend to invest in more properties or plots of land in the coming year.

Landlords, one of the demographics included in the data, still consider buy-to-let as an attractive investment option, despite years of tax hikes and regulatory changes - the latest being the dividend tax increase affecting landlords who operate through company structures.

Much like their umbrella group of property investors, they too are turning to commercial alternatives to diversify their portfolios.

London-based broker Chris Sykes told FTAdviser last week: “Some clients are moving into commercial space. Whilst some are getting into planning gains - so buying land and applying to build on it, or selling it off to developers.”

Whilst the government has introduced measures such as permitted development rights [PDRs] in order to bypass planning permission on certain building works or changes, Gibbs said almost 244,000 homes were built in 2019-20 which “is still over 50,000 homes a year short of the government’s self-imposed target”.

Gibbs continued: "As such, it is vital that the new housing secretary presses ahead with the government’s plans to subject the planning system to a serious reform. 

“This is not the time to reverse away from the critical issues the intended reforms sought to address and urgent clarity is needed in the industry, particularly in relation to the government’s stance on permitted development rights.”

“PDRs have been a positive move, but much more is needed, and the government must act decisively to address the chronic housing shortage.”