In major towns and cities, the demand for homes is huge, but there is a lack of land to build new property on. One solution is to build up, and the space above existing property is in high demand.
Airspace development not only provides a fantastic opportunity for property developers, it is one viable solution to help potential buyers and local communities prosper.
This guide informs you about airspace developments, the benefits and opportunities provided by airspace developments, and how to best arrange airspace development finance.
What is Airspace Development?
Airspace development refers to adding new property to the top of existing buildings. Typically, this development relates to one or two stories. Given land is in short supply in many areas, while demand for homes and properties are high, airspace development is an attractive solution and specialist lenders are keen to provide airspace development finance to complement this.
Why is Airspace Development an Option Now When it Wasn’t Before?
A number of factors make airspace development a key option in certain locations, including:
Technological advances with respect to materials
Technological advances with respect to construction techniques
A lack of available space for property in desirable areas
High property prices in desirable areas
Change in permitted development rules
These factors create demand and the means to fill this demand, in a profitable manner.
Can all Areas Benefit from Airspace Development?
While any area can benefit from airspace development, the greatest utility from airspace development is seen in towns and cities dealing with a housing crisis. A notable example is London, with limited space, and property prices far greater than in other major cities in the country.
Adding new homes on top of existing property is an excellent way to increase supply of homes in areas where people want to live.
What are the Benefits of Airspace Development?
With many people being excited by this opportunity, there must be a range of benefits associated with this work. There are benefits for new buyers and existing property owners, but there are also notable benefits to local areas, and communities which call these places home.
If you plan on buying property with this sort of development, the benefits are apparent. You have a chance to own property in a desirable area. You also have the chance to own a new-build property in an area which already benefits from community infrastructure.
Why Would Existing Property Owners Welcome Airspace Development?
It is easy to see why prospective owners appreciate the opportunities created by airspace development, but why should existing property owners’ welcome additional development on top of their property?
Some reasons existing homeowners welcome this form of development include:
New homes at their premises lower service charges and building maintenance costs, saving homeowners money
This work typically leads to upgrades at the premises, improving the overall building
Property value is likely to rise
There will be disruption, but thanks to improved construction practices and techniques, working practices are less disruptive than they were. This isn’t necessarily an advantage to existing homeowners, but it mitigates a potential negative point.
Are There Benefits to the Local Community?
Many development projects in the UK, while seemingly attractive on paper, often fail to make it past the planning stage. Often, complaints from community residents block and prevent developments. This means for airspace development to be viable; the local community needs to benefit. Some key factors which make airspace development attractive for local communities include:
An increase in supply of homes without using up local land
Existing buildings and communities are preserved and enhanced, as opposed to being cleared
Greater housing density with no immediately noticeable impact on an area’s appearance
As with the benefits to building residents, improved technology ensures there is less demolition and waste with these projects. When compared to potential disruption from traditional building projects, airspace developments have less impact on locals.
Is it Possible to Buy Airspace Rights in the UK?
In the United States and Europe, buying airspace rights is quite common, but in the United Kingdom, it isn’t a topic that is as well-known. This means many local areas have individual processes. Even across the capital, the use and availability of airspace developments can change from borough to borough.
Typically, the freeholder of the land also owns airspace development rights.
An example of this from Victoria, London saw the freeholder having to offer rights to leaseholders in the property first, before the rights could be placed on the open market.
Airspace development rights are often expensive, and will often carry other clauses. Developers working on behalf of a company who purchased airspace development rights in Vauxhall Bridge Road had to replace lifts at the premises, as part of purchasing negotiations. It is not uncommon for roof repairs and communal area upgrades to feature as part of airspace rights.
How Does a Buyer Fund Airspace Development?
Airspace developments are likely to be lucrative, especially at high-end London prices, but funding airspace rights and development work is expensive. Even leading developers require funding, and traditional funding isn’t typically suitable.
Finance for these developments is usually based on the Gross Development Value (GDV), which is the value of the project once all work is done. Loans are typically provided up to 70% of the GDV, with funding released in stages as work continues.
Funding is available for up to tens of millions, and the loan is often paid back within 18 to 24 months of agreement. There are various fees to consider, including lender fees, legal fees, valuation costs and more, and these payments are typically rolled into the loan amount.
Any organisation or individual interested in this funding requires a suitable exit strategy, which shows how they’ll pay off the funding, typically this is sale of the new property or a refinance. The applicant must also meet the criteria of the lender.
How Does the Lender Measure Applicants for Airspace Development Funding?
The key assessment points for a lender in the airspace development funding field are:
These are all critical components, and the indicators lenders are looking for to provide funding for an applicant.
For capability, the applicant must show they have the means to carry out the work and manage the
development and property. A strong track record in this line of work, or showcasing a partnership with trusted professionals in essential fields, is crucial for applicants.
The character of the individual or company applying also matters. A firm with a poor reputation on development work or maintaining property is viewed as a greater risk than a firm or person with great reviews and a provable track record.
Security is linked with the property type, and whether there is demand for this property type in the local area. Also, if the applicant shows they have experience with this style of property type, it will enhance their application.
Funding also matters, and a sizable deposit is required with most funding of this nature. In addition, if the applicant can show an exit strategy which details how they’ll pay off funding, their application will be better received.
Airspace Development Applicants Need External Help
Not only do airspace development applicants require external help in developing and managing property, they’ll benefit from help from a specialist mortgage and funding broker.
As you’d imagine, not all lenders offer airspace development funding. These loans are available from specialist lenders, and if you’re not a specialist in the field, it can be difficult to find and evaluate your options.
Working with a specialist funding broker not only helps you find more funding options; they’ll help you make the best application. Specialist brokers have more experience in airspace development finance applications than the majority of people. So, anyone serious about funding this development work needs to call on trusted experts for help.
Key takeaways from airspace development:
The combination of demand for property and a lack of land makes airspace development a tantalising prospect for many investors
The right sort of project not only benefits developers and buyers, existing property owners and residents can benefit too
There are challenges to overcome, notably in arranging finance, but specialist brokers will assist in this process
How to Explore Your Airspace Development Finance Options with The Money Hub
If you are looking into airspace development finance advice, help is available.
Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated finance advisors or you can complete an enquiry form which will allow you to schedule a call time.
DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.
Typically terms can be from 6-24 months, but every development is unique and therefore a bespoke funding facility will be arranged. Having a clear exit strategy to pay off the development finance upon completion is key.