When bricks and mortar aren’t enough
Roger Tidyman of Darego Capital Bank considers how builders and developers should approach a hard market.
As interest rates rise and the financial markets are in flux, property buyers who are prepared to part with their cash are becoming a rare commodity. Developers must work harder and smarter, doing more to convince potential buyers to sign on the dotted line. And this despite demand for housing outstripping supply in many areas of the country.
For large developers, engaging potential buyers through extensive marketing campaigns is run of the mill. But for smaller developers and builders, the hoops that you have to jump through to ensure a sale can often come as something of a shock. It’s best to be well prepared from the beginning.
For many smaller developers, the initial emphasis of a project is on securing the right land or property, setting a budget, preparing a schedule and securing planning permission. All, without doubt, essential, and without which a project can come to an untimely end. However, many developers simply do not allow enough time or a large enough budget for the marketing and selling phase of the project. It is this phase which will become increasingly important in this hardening market.
Builders have been able to get away without marketing strongly in recent years. It has been a sellers’ market and everything put up for sale has moved. Those days are gone. Housing supply may still be lacking generally but more people are concerned about their financial security – in short, they are becoming more risk averse. Confidence in the financial markets is low and this is starting to show in property sales. It’s a fact that if people are not confident in their financial future, they’ll hesitate before committing to a mortgage they might struggle to repay. First time buyers in particular are being put off entering the market, consequently properties will stick. Builders and developers must pay more attention to moving units; it could be extremely costly if they don’t.
It might be obvious but the best way to ensure a sale is to allocate a sufficient marketing budget from the outset – and stick to it. When you’re deep into a development, pulling money away from essential specifications to re-allocate to marketing is a non-starter. But properties won’t sell themselves so set the budget at the start to avoid a nasty shock.
It is equally important to invest your marketing budget in an effective campaign. Don’t pour your money down the drain on a marketing programme that misses the mark. It is critical to engage an appropriate and proactive selling agent; one who understands the unique selling points of your offer and talks to your type of end customer.
In addition to this, ensure your property is well presented; fully completed, ideally in show house condition and ready to seduce potential buyers. The finishing touches simply won’t happen if you don’t budget for them and plan in advance.
Offering deals can also work a treat – free stamp duty and legal costs are always tempting!
The whole process, from inception through to sale must be well managed. Assess the footfall achieved during the marketing and sales period and, critically, keep a database of everyone who makes an enquiry about the project so that you can stay in touch – both for this project and those in the future. Following these steps will help nail the sale and keep critical non-sales time to a minimum.
You could be forgiven for thinking that most builders and developers know all the marketing tricks. And perhaps they do, but knowing and doing don’t automatically go together. In fact, marketing to this level is quite unusual for smaller builders and developers. At least 20% of small builders and developers do not actively market their developments.
To achieve a marketing campaign that delivers results, i.e. return on investment, seek help from professional advisors in both finance and marketing. Your lender should be involved in the project from the outset and will be able to help you develop an appropriate budget for sales and marketing. Lenders who have worked on a wide variety of projects are fully aware of what generates success and are well placed to advise you on the budget needed for this last and critical phase. Let’s be honest, it’s in the lender’s interest to ensure you get a sale.
Lenders and marketing agencies are also experienced in what type of internal specification helps to sell a development. Using expensive materials might make a house look fantastic, but buyers in your market may not value that extra quality enough to pay for it. It takes real skill to spend no more than is really needed to provide the level of quality and design that can realistically be recovered – especially in a changing market. For example, if you aim to sell a one bedroom flat be aware that typically buyers in this bracket and with this mindset do not want to deal with costly repairs, and understand that their property purchase is not a lifestyle choice; often it’s a restricted choice or the first step towards an aspirational lifestyle. Therefore you’ll need to specify appropriate materials to make it cheap, cheerful, modern and reliable.
At Darego Capital Bank, we are often asked for advice on the most appropriate marketing agency for specific needs and areas. Ask your lender how much you should allocate for marketing, and consider your marketing spend in terms of potential sales made versus sales lost. What you spend on marketing often bears little relation to the money you will lose if units remain unsold. For example, if you hold a property portfolio valued at £2 million which remains unsold for six months, it will cost you around £15,000 each month in finance costs to keep and maintain it. If you were to allocate a marketing spend of £50,000 at the outset of the project resulting in sales six months earlier you would save £40,000.
It’s never easy to part with cash while there’s none coming in, especially on something like marketing which is often intangible, but it’s vital for success in a more difficult sales market. Failing to market your houses well will cost you dearly in the long-run. Quite simply: plan properly, budget adequately and implement effectively. You’ll be glad you did.