What is a new-build property?
New builds are, more or less, exactly what it says on the tin – a property that has been recently developed or has had substantial renovation within two years without being sold in that time.
For developments that have not been completed or still have not started, these are known as off-plan.
Investing in off-plan developments can be a little more tricky, especially when trying to secure a mortgage. It is far more straightforward once the build is complete.
The Pros of investing in new-build properties
To make this simple, we will lay out the pros and cons of investing in a new build and quickly summarise our thoughts at the end.
New-build properties can be an attractive investment. But be sure you understand what the full scope is before taking the leap.
Ready to go
New build properties are move-in ready, meaning they don’t require prior preparation, maintenance or renovation before putting to market. Tenants also love this, a freshly built apartment, flat or house to move into.
Another advantage is buying directly from the developer or property builder, which means there is no property chain – this may speed up the transaction as you won’t be relying on other buyers to secure a mortgage or sell their house first. As an investor, this also reduces the risk of the sale falling through.
Popular with tenants
New builds are much more popular with young professionals and students. As rental prices increase, tenants are more selective with where they spend their money, the rise in popularity of new-build apartment blocks; developers are introducing more attractive features to swap renters.
Choosing to develop:
- Higher specs
- Better temperature-controlled buildings
- Integrating communal areas, cinemas and gyms
- Intricate and fascinating layouts
- Adding shops and onsite facilities
The younger renters of today won’t settle for the standard copy and paste layouts with hundreds of duplicated units.
Lower overall running costs
New developments do not require the higher maintenance costs you would find with an older property, nor do they have the higher running costs due to more efficient insulation, electricity and plumbing.
A report earlier this year by the Ministries of Housing, Communities and Local Government revealed that; from January to March 2021, 82% of new properties were certified with A or B ratings.
They also come with a 10-year NHBC warranty to cover structural defects.
The cons of investing in new-build properties
There are many pros to new build investment, and we want to ensure you have a solid understanding of the overall investment. Cons may not always turn out that ways and often depend on individual circumstances – we have listed the most common.
With all of the pros listed above, it should be no surprise that they come with a premium. Much like purchasing a new car, once it leaves the dealership floor, the price will depreciate.
Although, this does not have to be bad news, as the time needed before serious expense on maintenance will be much longer than that of a car. With the right long-term strategy, you can recover your losses.
Often with new developments, they can come with snagging issues which are usually small but still come at a cost to repair.
Once the build is complete, you can arrange a quick snagging survey to be carried out and highlight any defects within the property.
Thankfully, this can be done before purchasing and will reduce any impacts on your budget.
Limited scope price negotiation
There’s limited scope at both ends of the investment, negotiating at pre-purchase and adding value to the property post-purchase.
In general, ‘new-builds’ are part of a larger project – developers want to maximise profits, giving less wiggle room for potential investors.
At the pre-purchase stage, you will want to negotiate to increase your returns whilst this can sometimes be possible, it is rare. To generate more interest, developers will likely offer incentives. You may want to consider multiple developer incentives before deciding on the best for your long-term goals.
When trying to add value, unlike other pre-owned or single residential properties, it may end up costing you far more to renovate or update the internal fixings & fittings to a new build. Developers will utilise the space to its full potential, leaving little room for additions or structural changes.
So, is buying a new build a good investment?
As with all investments, there are upsides and downsides – whether or not it is a ‘good’ investment relies on your situation, what financial goals you have, your expectations and what type of investments interest you.
As you are reading this blog, we can assume you have an interest in property investment. If you are planning a long-term investment, a ‘new-build’ development may provide a solid return. Providing you have the capital upfront and the ability to wait to see the returns, they offer high annual yields.
Firstly, they offer modern high spec, move-in ready developments situated in key city locations. Lower management costs, requiring less maintenance in the first few years, means lower expenses.
Secondly, they are attractive to tenants, require less attention and offer dependable average yields – meaning you can purchase multiple units at scale to expand your portfolio.
To summarise, a new-build property should be considered a long term investment. With the premium upfront costs, it is unlikely you will make a short-term profit. If your goal is to generate profit in the short term, we recommend researching ‘flipping’ or investing in single residential homes.