Why Coverting Commercial Property To Residential Homes Is In Vogue At Present
Converting commercial property into residential units is a great way to profit from property investment. Whilst many investors take out a commercial mortgage with a view to owning the premises or renting it out to a business, many others buy with the intention of converting the property into a number of self contained residential units.
With an increased in demand for urban living, many city centre townhouses are being converted back into their original use as a home. Previously they were often used as offices for professional firms such as accountants or solicitors.
Over the last few years, buying commercial property to convert has not been easy. The planning process has been lengthy and complex in many cases whilst there have also been well publicised problems with obtaining the commercial mortgage finance needed for such a project.
Over the last 3 4 years banks have been much more cautious about whom they will agree a business loan or commercial mortgage for. This has made it much more difficult for both individual investors and companies to obtain the funding they require to buy commercial property either for their own use of for conversion to residential homes.
As well as restricting commercial mortgage lending, banks have also reduced their maximum 'loan to value' (LTV). Businesses and investors have therefore had to commit a much higher deposit from their own funds as banks have typically restricted lending to 60 65 per cent of the purchase price.
Bureaucracy and red tape have also prevented many investors converting commercial property into residential units. The planning process is often long and complex, but now the Government is set to tackle this problem. New plans have been unveiled which are designed to increase the number of new properties to meet growing demand for homes.
The BBC recently reported that between 7 and 9 per cent of all commercial property in the UK was currently vacant whilst just 129,000 new homes were built in the UK in 2010 the lowest peacetime figure since 1923.
The Chancellor of the Exchequer, George Osborne, has tried to deal with this problem with measures announced in the recent Budget. Mr Osborne announced that he intended to abolish the requirement for developers to obtain planning consent to convert empty warehouses, business parks and offices (not shops) into residential housing. Ministers believe that the plan could save GBP140 million in bureaucracy over the next decade and would create up to a quarter of a million additional flats or houses.
Whilst clearly we would not want to see property that might still be capable of sustaining jobs taken out of commercial use, there are many places where business will never come back and it makes huge sense to look at alternative uses, particularly residential where there is a massive need for new sources of supply. That is the view of Liz Peace, the chief executive of the British Property Federation (BPF) who welcomed the proposals.
The Government's plans to scrap the need for planning consent should make it much easier for developers to convert empty commercial premises into new homes. With commercial mortgages becoming more widely available, this could be an excellent answer to the shortage of new homes in the UK as well as tackling the problem of empty commercial units.
About the Author:
Howard O'Gollegos writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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