A new build is, as the name suggests, a property which has recently been built (and noone has lived in it). It can be an apartment or house and be completed, still in construction or even still at the basic planning stage.
Advantages of investing in new build properties
There are impressive discounts to be made when investing in new build properties – especially if you’re buying off-plan and paying in cash. Better than that though, apartments or houses (on the whole) tend to increase in value, so that by the time the property is complete, it has gained in value. Many investors at this point sell and pocket the additional £10,000 or £20,000 they’ve gained by doing practically nothing – except checking on the development every now and again, and taking the risk of investing in the first place. This is known as Flipping and was very popular just a couple of decades ago, when the property market was flourishing. Nice work if you can get it…
Generally, new build properties tend to be more attractive to tenants than existing properties. That’s because they look good, smell good and have been built in a modern style. There’s also less chance of anything going wrong with the electrics, dampness etc.
Probably more important for your tenants is that new government energy efficiency legislation means the properties will be more energy efficient, and, as a result, cost less when it comes to utility bills. According to the Home Builders Federation last year, 8 out of 10 newly constructed properties they surveyed had top energy performance ratings of A or B. This compared with a mere 2.2 for older properties.
For you (the investor), you’ll have a 10-year guarantee that should the plumbing, wiring, roof etc. prove problematic, then you won’t have to pay for it to be repaired, because it’ll be covered under warranty. Appliances too – such as washing machines, heating etc. – are usually covered for two years.
Possible pitfalls of investing in new build properties
There is, of course, the nightmare scenario where the developer goes out of business and you’re left being the owner of a half-constructed apartment. Another place you don’t want to go is if the project is delayed. If you were planning to rent the apartment or house out, then a six-month delay means you’ve just lost half a year’s rental income.
Some tenants can be put off by the smaller size of new build properties (whose rooms seem to be reducing in size as time goes on). Research, carried out by UK insurance company LABC Warranty has shown that living rooms for new build properties are around one third smaller than in homes built during the 1970s.
If the property market takes a slump (as is predicted, albeit slowly and non-drastically post-Brexit), then new builds are usually the first to lose value. With an older property, chances are they won’t lose as much value and you can still benefit from capital appreciation.
Snagging lists can be a hassle to deal with. Electrics, wiring, appliances etc. do go wrong in new builds and it can only be fixed if you contact the developers and tell them. This means doing a thorough check of the building yourself – or paying for a surveyor to do it.
In summary then, new build properties can certainly be a good investment idea – but, like most good things in life, they don’t come without risks.
Speak to Chris Hames who specialises in investment property.
Call 0333 123 1330