Land Development Projects

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.