The current landscape for SME developers

Seen as the enterprise most likely to bring change and innovation to the sector, the Prime Resi Journal of Luxury Property conducted an interview with our managing director, Mani Khiroya, who provided a full breakdown on the current landscape for SME developers across Funding, Planning and Resourcing.

Funding

The lending outlook for SMEs appears to be positive, with an expanded debt marketplace now including non-banking lenders such as family offices, specialist, and peer-to-peer lenders providing a wider range of options. Bridging companies chasing better returns have also entered the market, offering short term solutions to smaller, less-experienced developers.

Mainstream lenders continue to shy away from pre-planning transactions due to the perceived risk involved and while funding for speculative schemes can be found, it carries a significant premium. In these scenarios, gearing is significantly lower than pre-recession levels and that creates a high barrier to entry for SMEs looking to create additional value through the planning process.

Bank valuations are still typically challenging as they generally don’t support the new build resale figures required to enable site acquisition in a competitive land market. Average margins have reduced slightly through competition from new entrants, whilst leverage has remained constant at various price points.

The message here? Funding is available for those who know where to look and are prepared to be creative or share their returns. In order to remain competitive when acquiring sites, SMEs need to be more innovative and flexible when structuring their financing solutions – there are some prudent opportunities available for those who are willing to do so.

Planning

Sadly, the planning system remains sluggish and wholly geared towards large businesses which have the time and deep pockets required to play it effectively. There needs to be a wide-reaching reform that incentivises SMEs to enter the market; currently, they are discouraged by hurdles such as viability assessments, conservation issues, and heritage assets, all of which require specialist advice that comes at a cost. As an SME ourselves, this is something we are keen to see – particularly as these are the companies that are likely to bring change and innovation to the sector.

There could be innovation around tenure type for example, which might provide a solution to affordability and which SMEs might be keen to try, if it were not for the current planning system which is too monolithic for this to happen.

Resourcing

Seldom does a day pass where the skills and resource shortage is not mentioned but this is always in the context of the big housebuilders – and if it’s a problem at that level, it becomes exacerbated further down the chain. SMEs are struggling to attract staff, competing against the big name players who have a clear pipeline of work, which makes growing a real challenge.

To date, the Government has rolled out a number of initiatives to encourage housebuilding on the large scale but we need to see it encourage new entrants into the sector by providing assistance or indeed tax incentives to smaller businesses to enable them to take on staff. After all, it is talented people that facilitate growth.