As the pressure on the existing infrastructure and housing stock increases in
both residential and holiday locations, more and more developments are taking
place on green field sites. This often involves several years of detailed
planning applications and negotiations with the authorities, before the project
is granted final planning consent, whereupon there is a large uplift in the
value of the land for development. These delays inevitably curtail the number
of, otherwise excellent, developments reaching fruition and thereby perpetuate
the shortage of housing stock they are designed to eradicate.
One of the major reasons behind this problem is the unwillingness of lending
institutions to fund the planning period. Hence the developer is left with
significant adverse cash flow or, if he is able to borrow, punitive interest
charges.
As a result, several projects have been floated whereby the individual investor
has the opportunity to purchase an interest in the land at a rate slightly
above its green field value, but significantly below its value on full planning
permission being granted. This allows the purchasers to benefit from the
potentially high capital growth and the developer to obtain finance to bring
the project to completion.
There is clearly a risk in any such development that the anticipated planning
cannot be obtained. However, further risks can exist but can be avoided. One of
the dangers to individual investors is that the unscrupulous entrepreneur may
promote the sale of land with little or no chance of planning permission being
obtained. Alternatively, all the land may be sold but the anticipated vigorous
pursuit of planning consent is discontinued as a result of the developer now
only having a marginal financial interest in the outcome.
There are also many potential pitfalls in the path of both purchaser and
developer alike in the varied financial services legislation that exists in the
various jurisdictions where the property is sited and where it is sold.
Citadel acts as stakeholder and administration agent for the purchasers in
establishing compliant legal structures which overcome many of these
difficulties and also involves itself only in projects where the developer
intends to keep a proportion of the development land until full planning
consent has been obtained. In this way, the interests of the developer remain
in line with those of the buyer in that the major benefits accrue to all only
when the project has been approved and construction can commence.