Knockdown Profit

The Sunday Times Graham Norwood, 04/05/03

Retired widow Todd Dodge sold her Berkshire home at a healthy profit — by suggesting it be demolished. She cashed in on a growing trend, whereby developers and self-builders, frustrated by a shortage of empty prime sites, are tearing down old homes to replace them with larger, newer ones.

Dodge sold her bungalow to a building company after recognising it was in poor condition, making it difficult to attract buyers, but that it was in a very desirable location.

“It was the perfect thing to do. It was a three-bedroom wooden bungalow at Sunninghill in Ascot.

It fell into disrepair during my husband’s illness, and when he died I knew the place wouldn’t fetch much because of its condition,” she says.

But it had good road access, far-reaching views and a plot of three-quarters of an acre, so she calculated it would be ripe for redevelopment. She asked an estate agent to negotiate with developer, Arcadia Homes, and got £210,000. The firm wanted to build two homes but was denied planning permission. It eventually built one five-bedroom house that sold for £695,000.

“It took a year between selling and moving out. Arcadia wanted to get planning permission before confirming the purchase. Building work on the site started before I found my new home 2 miles away,” Dodge says.

Estate agents are increasingly using this tactic to dispose of hard-to-sell properties, such as relatively small 1970s houses, built on large plots with commanding views.

Tim Harriss, of agent Knight Frank in Surrey, says: “They were probably a good idea at the time but they look ugly by modern standards. They lose out in today’s market when there are more homes on sale than there are buyers. Those who are buying will choose the best-looking homes.”

On the other side of the demolition coin are the buyers. These are not always hard-nosed developers — some are from the army of Britain’s self-builders, who number more than 20,000 each year. As councils severely restrict development on empty sites, many self-builders buy a plot with a house already on it.

“Developers are often in competition for sites of this kind,” says James Greenwood, director of Stacks buying agency. “But individuals are frequently able to outbid developers where a single property is concerned, because as private buyers, they will not have to factor in the profit element.”

Chris and Karen Long, who self-built their East Anglia home in 1997, were keen to build bigger but struggled to find an empty plot. Then they heard about a local farmer selling a derelict farmhouse.

They paid £60,000 for the property on a 2-acre site at Tongue End, between Bourne and Spalding in Lincolnshire. By the end of July, work should be complete on their five-bed house, valued at £425,000.

Norwich and Peterborough, the biggest lender in the self-build field, says a self-build property of this size would normally cost 65%-75% of its market value to construct, taking into account the land, materials, building costs and utility connections. The building society adds that most projects of this type involve intensive work by the individuals themselves (in addition to “hired-in” builders), which tends not to be costed.

“Ideally we’d like to build more than one house on the site to make it a less risky venture. But the planners said as there was only one property there, there should be only one there in future,” says Karen, a former building society worker. She and husband Chris — who started a building business in 1997 after they constructed their first home — say they and their two daughters ultimately want to move to France, and buy a gîte to do up or re-build.

For self-builders and developers alike, British tax laws mean demolition and building from scratch can offer financial advantages over alternatives such as refurbishment.

New building costs can be eligible for Vat relief, potentially saving thousands of pounds. Additionally, most plots with homes on them will already have some form of residential planning permission that may save money and time.

The biggest advantage is that older properties usually have a lot of land, allowing a larger house or houses to be built.

“Bungalows in particular occupy large plots. A completed self-build property is worth much more than the land and build costs, so it leaves plenty of margin to incorporate demolition and still make financial sense,” according to Stephen Penlington of Norwich and Peterborough.

But there can be problems. Stacks’s Greenwood cautions: “Planning permission isn’t straightforward. There may be opposition to demolishing an existing property, or if planning permission is granted, it may be based on the size of the original property. Don’t assume you can knock down a bungalow and build a mansion.”

Also, be aware. If planning permission has been granted or seems very likely, then claw-back clauses are sometimes imposed on land or property sales. This means that any future owner who builds, and thus increases the value, may have to pay a proportion of profits to the vendor. The Royal Town Planning Institute says that planning departments’ attitudes toward demolition and rebuild can vary substantially between areas.

The National Trust has hit a more unusual problem with a bungalow it is selling near Haslemere in Surrey. It has views over Blackdown and selling agent Lane Fox says the trust hoped the property could be sold to a developer to demolish, making it more valuable than its sale price of £400,000.

But a restrictive covenant by the now-deceased donor means the bungalow can be sold only to somebody willing to refurbish or extend — demolition is strictly prohibited.

Arcadia Homes, 01252 733 622, www.arcadia-ventures.net; Norwich and Peterborough, 01733 372 372, www.npbs.co.uk; Lane Fox, 01428 661 077, www.lanefox.co.uk; Knight Frank, 01483 565 171, www.knightfrank.com; Stacks, 01594 842 880, www.stacks.co.uk

Hot to plot

Check with local planners that your plot would get planning permission for residential development — and if so, for how many properties
Use an experienced estate agent to negotiate with builders
Be prepared for a six-month “lock-out” after you agree a sale, while the developer confirms the potential for new homes