KEY LEARNING POINTS
- Estimate the level of real local demand there and only release enough plots to match this. It is better to have too much demand, rather than not enough. Lines of people queuing for days to reserve a plot will generate significant publicity which will help promote your initiative
- Work out the sales process you want to follow and stick to it. Develop supporting documentation that explains the process, and contracts to match. Don’t be afraid to impose penalties on those that don't deliver
- Most plots are sold at current market prices – prices are fixed, and discounts are usually not available. Prices take into account site servicing and all administrative costs, and they are often agreed by resolution at a council committee meeting
If you are selling plots you need to establish a clear process and manage it efficiently. There are four main stages in the process: -
- Reservation phase – when private homebuilders agree an ‘option’ to buy a selected plot
- Confirmation phase – when deposits are paid and a plot is secured for purchase
- Permissions phase – when private homebuilders need to get any planning or building consents in place
- Construction phase – the timeframe permitted under the sales contract or other form of permission to build the home
This Briefing Note provides advice on each phase and explains the mechanics of how the plots can be released and administered by a landowner. The advice is based largely on the experience of local authorities in the Netherlands which, to date, is considered to be good practice. However it also includes practical advice drawn from experience gained from some early plot sales in the UK, and feedback from other markets such as Germany and Australia.
This is one of many Briefing Notes that explain resourcing, planning, land, finance, demand, marketing, consumer support and various technical issues. To see the full range of guidance click here.
For the purposes of this Toolkit we have made the following definitions:
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This Briefing Note will be revised when the Regulations to support the commencement of the Self-build and Custom Housebuilding Act 2015 and the Government’s Right to Build policy are finalised.
HOW MANY PLOTS DO YOU RELEASE AT ONE TIME?
It is difficult to provide a simple answer to this question.
The number of plots released in any phase depends on the scale of the overall development; the level of local demand and the rate plots can be sold (the ‘sale rate’). The number of similar plots or opportunities in the area can also be a factor. A brief market appraisal should therefore be undertaken.
Private sector developers or estate agents will usually have a good understanding of the local market, and may be able to advise you.
Where a council is bringing forward its own land a common rule of thumb is to release enough plots to just meet the established demand. This way you can generate excitement and demonstrate the success of your project.
So, for example, when Almere City Council released the first phase of the large Homeruskwartier development around 300 plots were made available in one go. Since then the council has scaled back further plot releases because it did not want to saturate the market. The council now typically releases between 30-50 plots at any one time. This also makes the administration and sales of plots more manageable.
Based on experience elsewhere, councils will want to avoid releasing plots that only have a limited number of buyers - this could lead to presentational challenges because it may be seen as a failure (especially by the media).
Councils in the Netherlands release plots after a sustained promotional campaign that normally generates considerable levels of interest. Plots are sold on a first-come-first-served basis with people often queuing for weeks to ensure they get the plots they want. This attracts press attention and contributes to the public’s positive support for the initiative.
Various ways of allocating plots have been considered in the Netherlands. These have included: -
- Lottery approaches, where names are simply ‘pulled out of a hat’
- People being invited to submit sealed bids for the plots (with the plot going to whoever offers the most)
- Allocating plots to people with the best designs
But all of these have been rejected, and on balance, most people in Holland accept that the queue is the fairest way.
Lots of publicity is generated when a council announces the imminent release of a new phase of plots. People then visit the Plot Shop to see what plots are available and they begin to identify which one they want.
Following this a formal announcement of the date when reservations will be officially taken is then placed in the media and on a council’s website (the reservations date) – this is normally announced about a month in advance.
Approximately a week before the reservations date, detailed Plot Passports are published for every plot. These are in PDF format online, and hard copies are also available from the Plot Shop and at the council’s offices. The late release of the Passports is partly due to councils wanting to generate buyer interest, and partly to give the team as much time as possible to finalise the design parameters on each plot.
The Plot Shop staff play an important role in engaging with plots buyers. They take enquiries prior to plot releases and manage expectations. They also help to organise the queues that typically form prior to the reservation date, to ensure no ‘queue jumping’ takes place.
The typical rules are that people are allowed short breaks to get food or to visit the bathroom, and they can ‘nominate’ someone to hold their place in the queue while they grab some sleep. It is not possible to queue to reserve a plot and then transfer this on to another party. Plots are reserved in the applicant’s name only, and the formal contract they are required to sign is between them and the council. Where plots are unwanted, the contract requires them to be returned directly to the council.
Although the experience of the queuing system has been positive to date - lengthy queues cannot be ruled out, particularly in a high demand area. This can impact on access to council offices and lead to pressures to make temporary facilities available for those queuing. Amsterdam City Council, for example, has had people camping for more than six weeks in council car parks, and is therefore currently reviewing the process.
Experience has shown that where there are, for example, 50 plots available for sale in one release the queue will automatically disperse after 50 people are in the line. This is because other potential purchasers realise they have arrived too late and won’t get a chance to reserve a plot.
Release plots to match demand
Estimate the level of real demand there is for plots locally and only release enough plots to match this. It is better to have too much demand, rather than not enough. Lines of people queuing for days to reserve a plot will generate significant publicity
Plot pricing is always a local consideration that will take into account the council’s objectives and its financial circumstances. Local authorities in the Netherlands typically base their prices on a council valuation of similar permissioned serviced building plots in the local area. Prices also take into account levels of affordability, site servicing and all administrative and marketing costs, and they are agreed by resolution at a council committee meeting.
Plots are then sold at fixed prices without negotiation or discounts being offered. Although councils look to balance their costs and perhaps build in a small overage, in most cases the main objective is not to maximise profits but to provide affordable plots for local people. This is also generally the experience in Germany, though some authorities there do provide small discounts to buyers who meet local affordability and household criteria (for example if they have young children or need to provide care for persons with disabilities).
Pricing the plots
Most plots are sold at current market prices – prices are fixed, and discounts are seldom available. Prices take into account site servicing and all the council’s administrative and marketing costs
WHY SPLIT THE RESERVATION AND SALES PROCESS INTO PHASES?
The main reason for doing this is to give purchasers time to think through their plans for their plot very carefully (effectively a ‘cooling off’ period) and to enable them to get their financial arrangements in place.
There is a good animated video (in Dutch) that explains the various steps to acquiring a plot in The Hague available here -https://www.youtube.com/watch?v=A4VRP0CvyVM&feature=youtu.be
The different phases commonly used by councils in the Netherlands are described below.
The Reservation phase (typically 1-3 months)
Some councils allow potential homebuilders to reserve a plot at no cost. Others charge a small deposit. For example in Almere it is possible to reserve a plot for three months for free. In The Hague it costs €300 (which purchasers forfeit if they withdraw; but it counts towards their deposit if they proceed with the purchase). In Amsterdam the initial reservation or ‘option’ to purchase costs €1,000 and purchasers then have a month to decide if they want to proceed.
The Reservation Process in Amsterdam
It costs €1,000 to initially reserve a plot and purchasers are given a four-week cooling off period. Amsterdam City Council sells almost all the land on a leasehold basis (normally 50 years, but with potential extensions). Purchasers can get a short lease (up to 18 months) while they confirm their designs and get their permits in place. This costs 3 per cent of the total land value (anything between €50,000 and €500,000, depending on the plot). When they are ready to build this is adjusted to become a long-term lease. Purchasers usually have 18 months to complete the build with a €10,000 fine per month for any delays. Between 2003 and 2006 nine plots (about 3 per cent) failed to complete within the deadline. Seven of these were fined.
The reservation phase gives potential private homebuilders enough time to consider affordability, arrange finance and investigate broadly what they want to build. Shorter periods are not considered appropriate as homebuilders can’t do all the necessary homework and research needed.
During this period the sales team at the Plot Shop will usually be in regular monthly contact by phone to check how everything is progressing, or the potential purchasers may arrange an update session with the team face to face.
Experience has shown that most potential homebuilders are very clear about what they want to achieve before they reserve their plot. Usually they will have already attended a preliminary meeting at the Plot Shop, they will have consulted online information about the purchase requirements, visited the site where plots are to be
released, identified the plots they are most keen to buy, downloaded the Plot Passports and undertaken a financial assessment to understand what they can afford.
The proportion of people who fail to move from a reservation to a sale varies and appears to depend on whether or not a reservation fee is charged. For example, in Almere (where no reservation fee is payable) the ‘drop out’ rate has to date been about 40-50 per cent. In Amsterdam (where it costs €1000) it is much lower. It also appears to depend on the location of the plots. Purchasers of plots in sought after locations seldom fail to complete a purchase, whereas less attractive plots are more likely to not progress to the ‘confirmation’ phase.
In both Almere and The Hague private homebuilders who make a reservation are recorded on a basic Excel spreadsheet/database. Neither council uses specialist sales software systems to track purchasers. Across Holland most ‘tracking’ of purchasers is coordinated using paper-based files that contain the reservation forms for the plots. Amsterdam is investigating a computerised reservation/sales process package, but does not expect to have this operational for some time.
In Germany councils generally use basic lists and application forms that are entered onto a database that is then administered by the estates teams.
The Confirmation phase
As the formal ‘confirmation’ deadline looms those that have provisionally reserved a plot are contacted by the Plot Shop to establish if they are going to proceed with their purchase. If they fail to pay a deposit at the end of the reservation period their plot is re-released and another potential buyer can reserve it. Plots that become available following this process are listed on the council’s website, and the information is also held by staff in the Plot Shop.
In The Hague a 10 per cent deposit (of the plot cost) is required at this point. In Almere private homebuilders can opt to pay the full 10 per cent, or initially just a 2.5 per cent deposit with the remaining 7.5 per cent falling due after nine months. Most prefer the second option as it helps those on tight incomes. In Amsterdam (where plots are sold on a leasehold basis), purchasers have to pay 3 per cent of the land value.
Formal contracts are signed when deposits are paid, and the council’s in-house legal team usually draws up the contracts.
We understand that in English law the maximum deposit that can be charged in 10 per cent.
The Permissions phase (typically 12-18 months)
To maintain momentum in the plot sales process councils usually ensure that plot sales contracts specify that all planning and building permissions need to be in place within 12-18 months, so that construction work can begin on site. In Germany the time period typically allowed appears to be about 12 months.
This lead-in time also gives private homebuilders an opportunity to sell an existing property if they need this money to fund their project.
During this period the team in the Plot Shop will again be in regular contact, checking that everything is on course.
The Construction phase (typically 18-36 months)
When everything is ready for construction to begin purchasers are given a clear timeframe within which to complete the work. At this stage they usually also have to pay any outstanding plot costs. Many need a mortgage to cover this, so this has to be in place at this point. Usually they then quickly get the construction work underway.
Councils in the Netherlands typically give them a 18-36 month window from this point, by which time the home has to be completed, and certified as being ready/fit for occupation (ie. a completion certificate). In Germany, construction is typically limited to two years. This is set out in the sales contract, with fines payable to the council for non-completion, charged on a monthly basis. Experience from house and land package contracts in Australia suggests similar practices.
To encourage the timely completion of homes the sales contracts typically set out significant penalties if there are delays. In Amsterdam the penalty is €10,000 a month, which the council always imposes, to ensure everyone knows that it’s not an idle threat
In the Netherlands around 2-3 per cent of homebuilders have problems keeping to the final deadline (usually due to things like divorce, ill health or loss of employment).
EXPERIENCE FROM THE UK
There is currently very limited experience of the sale of plots by councils in England. In Scotland councils across the Highlands and Islands region have made plots available for many years. Most sales are on small sites and they don't require a sophisticated sales process.
In Tain the Highlands Housing Alliance sold all 12 plots on a recent development in a matter of hours. People queued and the plots were allocated on a first come first served basis. The plots were only available to people with a local connection, so those in the queue had to bring a recent utility bill with them to prove they were eligible.
Over the last 20 years the Orkney Islands has facilitated a steady stream of plots on a number of small development sites. These are advertised on the council’s website, where they invite ‘offers over’ an agreed valuation. The council requires private homebuilders to complete the homes within three years, and purchasers cannot just buy a plot and then sell it on (they have to offer it back to the council).
Cherwell District Council’s ‘self build’ process for the 1,900 home Graven Hill development is explained in its Design Code. This allows for a total maximum delivery period of 32 months from plot reservation to home completion. The Code sets out three distinct phases: -
- Reserve plot and design stage (six months) - after reading the Design Code, identifying the most appropriate plot from the selection available, and absorbing the information in the Plot Passport and homebuilder reserves the plot for purchase. They then get six months to submit detailed designs
- Exchange of sales contract and Golden Brick stage (2 months) - Once designs are approved in accordance with the Plot Passport, the exchange of sales contract is completed. This is followed by the ‘Golden Brick’ stage when the foundations for the home are constructed up to base course by the council’s development company
- Completion of sales sontract and ‘Build-Out’ stage (24 months) - this requires the private homebuilder to build the home within 24 months of the contract completion date
Plot purchasers are expected to submit information to the council’s development company at each stage (for example building design, specifications etc) and to complete the construction process within the timescales provided. All designs have to accord with the Design Code, the Masterplan and the Outline Planning permission, with the Plot Passport acting as key reference point throughout the process. The first 200 plots are due to be released in 2016.
Define your Sale Process
Work out the sales process you want to follow and stick to it. Develop supporting documentation that explains the process, and contracts to match. Don’t be afraid to impose penalties on those that don't deliver
SALES OF LARGER PLOTS TO BUILDING GROUPS
In the Netherlands groups that want to secure a parcel of land for a collective project are typically asked to pay around €5000 to ‘option’ a site. It is recognised that this is a modest amount, but the councils argue that those involved in a group will typically have to invest €15,000 to €25,000 each as their contribution to the professional fees they will incur (mainly architects and lawyers). So the councils try to keep the initial reservation fee as low as possible.
Amsterdam City Council has facilitated the most group projects in the Netherlands, and only one group has experienced complications. In that instance the original ‘initiator’ withdrew, but the rest of the group then took on the site. Experience from Germany is similar – for example in Hamburg only one out of 93 groups has so far been unable to deliver their project.
The process used for groups in Amsterdam follows broadly the same route as for individual plot purchasers – so groups have to find 3 per cent of the land value when the option is converted to a lease, and they get 24 months (instead of 18) to build out the development. If they are late there is a fine of €5,000 per home per month.
Across Germany and France similar processes are employed when land is initially reserved for collective projects. Groups are then given 12-18 months to get all their permissions and finance in place. In Hamburg groups are offered a 12-month ‘exclusivity contract’ for this purpose.
The following Case Studies offer useful insight into the issues discussed in this Briefing Note:
The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.
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