Interest rate rise likely this year

wotsthat

Bantex wrote: »

It really is very simple.
If a builder owns a piece of land and they can build a house on it which will sell for say £200,000 this year, but they have projected that the same house will see for £400,000 in two years time. Not building now is the most profitable option.
This assumes the cost of keeping the land empty is not much.

Not building at all would seem to be the most profitable option based on your assertions.

Why on Earth would they waste capital building houses? May as well just become a land trader selling some land to builders when they need to pay massive dividends and keep the rest.

Bantex_2

wotsthat wrote: »

Not building at all would seem to be the most profitable option based on your assertions.

Why on Earth would they waste capital building houses? May as well just become a land trader selling some land to builders when they need to pay massive dividends and keep the rest.

My point is that returns can be maximised by timing the building. This involves a certain amount of hoarding which can be quite profitable as the costs of just sitting on the land are very low.

AndyGuil

Bantex wrote: »

Preventing the possibility of others building on the land is hoarding.

Others won't build on it either though.

CLAPTON

Bantex wrote: »

So in some cases it is better to hoard the land than to build on it.

if you knew you could sell the house then it would seem foolish to build it.

Bantex_2

AndyGuil wrote: »

Others won't build on it either though.

How do we know if the land is not offered to others?

kabayiri

Coping with changes in interest rates is one of life's lessons. It's easy for those of us with paid off mortgages to forget the pressures about on young people to enter the market. It's bad enough up here; goodness only knows what it's like in London.

Even the announcement of relatively small rate increases may just be enough to deter those who are operating at their limits (even if they conceal it well) from making that upcoming first time purchase.

wotsthat

Bantex wrote: »

My point is that returns can be maximised by timing the building. This involves a certain amount of hoarding which can be quite profitable as the costs of just sitting on the land are very low.

The issue is planning permission not hoarding. To get planning requires a certain set of skills, sufficient capital to be able to buy the land without seeing a return for years and the cash to fund 'local projects' which is a pre-requisite these days for building on any scale.

The big builders have these skills and the capital. They need to plan their land pipelines but they don't need to hoard because the cost of entry to the market is high so they can just buy more land as and when safe in the knowledge that competition is limited by the planning process. Therefore there's a large premium in converting land from 'without planning permission' to 'with planning permission'.

If planning was quicker and less complex that premium would fall. At that point hoarding might make more sense to increase the price of land. Hoarding land now makes no sense at all because it's not the physical lack of land that's the problem.

Bantex_2

You are right, but I believe that a fair amount of land already has PP and the developers are waiting for the right time to "pull the trigger" whilst the land remains undeveloped.
http://www.bovishomesgroup.co.uk/about-us/our-business-strategy/

May find this of interest, the line about managing plots with selective use to maximise profits. (or something like that).

AndyGuil

Bantex wrote: »

How do we know if the land is not offered to others?

If the building company is unable to maximise profits how is another company going to do they same, they would have to buy the land from them for a start.

Bantex_2

AndyGuil wrote: »

If the building company is unable to maximise profits how is another company going to do they same, they would have to buy the land from them for a start.

Happens all the time in many industries where one company can make money out of something that another cannot.