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
INTRODUCTIONIf 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
AboutThis 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.
DefinitionsFor the purposes of this Toolkit we have made the following definitions:
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- ‘self and custom built homes’ are properties commissioned by people from a builder, contractor or package company (this is known as ‘custom build’ housing). When people physically build themselves, sometimes with help from sub-contractors, this is known as ‘self build’ housing. We call all these people ‘private homebuilders’.
- ‘serviced building plots’ are shovel-ready parcels of land with planning permission, laid out and ready for construction with access and utilities/services provided to the plot boundary. Some private homebuilders just purchase a plot; others opt for a ‘shell’ home (that they then finish off), or they select from an extensive menu of options offered by developers/builders.
- ‘group projects’ mean homes built by private homebuilders who work as a collective.
NOTEThis 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
Release plots to match demandEstimate 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 PRICINGPlot 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 plotsMost 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
The Confirmation phaseAs 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 UKThere 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