Paul Higgs, property investor

253: More developers will go bust in 2019 than in any other year since the recession says Paul Higgs



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Paul Higgs

When we received an email from Paul Higgs on New Years Day saying that more developers will be going bust in 2019 than in any other year since the recession, we knew we had to get him on the show.

A previous podcast guest, Paul’s career in property spans 35 years and he has been involved in the construction of over 6,500 residential units over the course of it. However, it hasn’t been without difficulties. In his own words, the 2008 recession ‘almost wiped… [him] out.’ Why then is this risk-averse property developer concerned with what 2019 has to offer the property world and what are his plans for the year?

Who will go bust and why

‘The majority of property developers eventually go bust or give up,’ Paul says. ‘It’s high risk and high reward.’ Noting that the number of SME property developers in the UK has dropped from 12,500 in 1988 to less than 3,000 today, Paul thinks developers who have scaled up too quickly will be first in the firing line. ‘I started off doing the smaller deals and gradually built up to bigger deals. I eventually realised that if I wanted to do much bigger deals I needed to get into a position where I could learn how to do these deals properly,’ he says.

‘I really needed to learn from people with experience who knew what they were on about. It was the reason I went and spent 10 years working for PLC developers.’

He argues that developers too dependant on commercial to residential will feel the pinch in particular. ‘People thinking that’s a new thing [commercial to residential] are about five years too late. It was good to start with because landowners didn’t realise. You could buy something at office value and you knew that very easily it could be residential value.

‘[Now] there’s no-one who owns an office who doesn’t know about PD [permitted development rights]. There’ll be more office to residential developers going bust than anyone else in 2019.’

The good news – for the clued up and risk averse at least – is that with so many developers going bust, opportunities will arise in the market. ‘Markets like this get rid of some of the crazy competition,’ Paul says. ‘I think things are going to get easier for people who knows how to do things properly.’

Paul’s plans for 2019

In the next twelve months Paul will be focusing on what he’s always done, finding real off-market development deals and adding maximum value to them through clever design and planning in, only this year it’s going to be more important than ever. ‘Most of the time it’s brownfield land,’ he says. ‘There might be an old factory, warehouse, or commercial space of some sort. I also do quite a lot of land assemblies, where I’ll piece together big gardens.’

He is also seeking out offices to be refurbished into co-working space. ‘So much office stock has been taking out of supply by PD [permitted development], office rents have gone way, way, way up,’ he says. ‘ If you can do something like the WeWork model, you’re squeezing more people in sharing space, like the HMO model. You’re literally squeezing people into space so you get a higher pound per square foot, but you’ve got to do it in the right way.’

Whilst based in the south of England, Paul is optimistic about the opportunities beyond the M25. ‘There are still places as you begin to head further north that aren’t as hot or done as London,’ he says. ‘The same principles still apply of course. Everything needs to be properly researched.’

What is a safe deal?

‘Industry standard target returns are 20% of GDV, 25% of profit on cost. That is an absolute minimum,’ Paul says. He adds that he usually surpasses these minimum limits through adding value. ‘I probably wouldn’t bother with anything less than 30% [profit on cost]’ Paul says.

Most of his deals make between 40 and 50 % profit on cost. 65% of his deals are £1 option deals, whilst the remainder are subject to planning, where a 5% or 10% deposit is required. Occasionally he buys unconditionally, but prefers not to.

The Millbank Land Academy: finding deals and adding value

Whilst Paul devotes 80% of his working time to his own development projects, the other 20% is reserved for training aspiring developers in the tricks of the trade. His Land Academy courses were born out of his frustration at the lack of in-depth training for developers wanting to scale up. The training is split into two parts. The first is about finding real off-market developments. The second focuses on securing those opportunities and adding maximum value in a way that will optimise their potential and will win the very best planning permissions.

Otherwise, what advice does he have for budding developers? ‘The whole world around us is pretty much created by a property developer,’ he says. ‘You can potentially make a tonne of money because it’s a risky, hard, complicated business. If you create a lot of value, you deserve to make a tonne of money.

‘It’s a risky business. It shouldn’t be entered into lightly.’

Further Information – to find out more about the training courses Paul offers. – contact Paul with any questions.

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