The risks of buying for development potential
Development potential is the most commonly overpaid-for feature in property, because the market prices hope and hope is frequently wrong.
A property with development potential is priced with that potential already partly included. If a plot could take a two-storey extension or a second dwelling, the asking price usually reflects some of the value that work would create — which means you are paying for permission you do not have and work you have not done.
That does not make development a bad strategy. It makes it one that requires establishing, before you buy, whether permission is likely and whether the uplift exceeds the cost.
Establishing what is possible
The local plan and the planning history are public documents and they tell you what the council is likely to approve. Reading them before you buy is the difference between a project and a gamble.
- Search the planning register for the property's own history and for refusals nearby
- Read the local plan policies on density, design, affordable housing and protected areas
- Check for designations: conservation area, green belt, flood zone, listed building, tree preservation orders
- Establish whether permitted development rights remain intact or have been removed by an Article 4 direction
- Look at recent committee and appeal decisions on similar sites, which reveal the council's real position
Costing the process
Planning is a process with costs that are larger and slower than most first-time developers expect. An application takes weeks to prepare and months to determine, and a refusal adds an appeal or a revised application.
- Architectural fees, often several thousand pounds for a domestic scheme
- Planning application fees, set nationally and payable on submission
- Reports that may be required: flood risk, drainage, ecology, arboricultural, transport
- Community infrastructure levy and any section 106 contributions
- The cost of an appeal if permission is refused
- Finance costs of holding the property through the process
Reducing the risk
The most effective step is to obtain permission before you buy, or to make the purchase conditional on it. A conditional contract or an option agreement lets you secure the property while you apply, converting an open-ended bet into a decision.
Where that is not possible, the price must reflect the risk that permission is refused. That usually means paying close to the value of the property as it stands, with little or no allowance for the uplift you hope to create. Paying for potential you have not secured is how development losses are made.
Common questions
- Is it worth buying a property with development potential?
- Only if the uplift, once you have costed the work, professional fees, reports and finance, exceeds the premium the market has already added for the potential. On well-advertised sites that premium is frequently larger than the net gain. Do the arithmetic before you buy rather than after.
- Can I get planning permission before buying a property?
- Yes, and it is far safer. You can apply for permission on a property you do not own, and many sellers will agree a conditional contract or an option agreement allowing you to apply while securing the property. This converts an open-ended risk into a decision, and it is worth the time and the fees.