Realising the strategic residential development potential of rural land

As head of strategic land in Scotland, my role is to advise rural clients whether their assets have potential for development in the future. The focus of this is often on residential use as this tends to drive the most value.

Much has been written about the shortage of housing delivery in Scotland and why that is. The Government has taken various steps to try and address the shortage – some initiatives being by way of direct support for the industry, particularly the funding of affordable housing – while others relate to planning policy change. Whatever, the mechanism it has been estimated that Scotland still needs to deliver 25,000+ new homes every year to meet its shortage.

To deliver this number of homes will, crudely, require approximately 900 hectares of land each year. This will not all be delivered from existing brown field and urban sites, necessitating the change of use of land on the urban fringe – often referred to as strategic land. To secure a change of use takes time and investment, particularly now that Scotland is looking at 10 year-long Local Plans.

For landowners who are unsure if their land has viable development potential, our planning colleagues carry out an initial assessment of their site. If it is felt that the land has residential development potential, then there are some choices to make regarding how that might be realised. The structures for delivery, subject to the landowner’s appetite for risk, are as follows:

• Do it yourself – high risk, high reward

• Joint Venture – spread the risk

• Promotion Agreement – less risk, providing discounted price having offered the site to the market

• Option Agreement – least risk, providing discount to market value delivered by negotiation, usually with housebuilder.

Choosing the right structure and party to work with is crucial. Potential partners will have their individual strengths and weaknesses. Knowledge of who is in the market is vital, as is selecting the right expert advice to help you. A good agent should be able to secure payment of the majority of the experts’ costs from a third party if that is the route you choose.

Market testing your opportunity among potential development partners can generate significant differences in the offers received. Asking the wrong people could cost you.

There are, of course, many factors which might influence your choice of partner, for example, discount to market value, the size of the upfront promotion or option fee, minimum price per developable acre, minimum developable area and, importantly, the planning strategy being adopted and the likely costs of securing consent.

Recent changes in planning regulations mean that decisions impacting value are increasingly being made early on in the process. It is important to have some input into the planning strategy to make sure that your interests are protected and that you are kept informed during the process.

It should be possible to secure the advice required to deliver a strategic promotion agreement - from marketing your site to a completed legal agreement - at no or limited cost to you.

Working with the right advisors is key when it comes to agreeing the sale price. It could be misleading to assess the market value of your project by simply running a comparison with others sold in the area. A more accurate residual valuation takes account of size, house types, site build costs and market conditions.