New-build homes can be an excellent investment. Like all property investments, however, it’s important to understand what, exactly, you’re buying. With that in mind, here is a quick guide to investing in new-build homes.
The three main categories of home purchases
Homes can be sold off-plan, as new builds or as pre-built. Off-plan property is property that has yet to be completed. New build property is property that has been completed but is still owned by the developer. Pre-built property is property that has already been sold at least once. It can still have been completed very recently but it is not brand new.
Off-plan property is generally sold at a discount to expected fair market value. This reflects the fact that the buyer has to wait before they can enjoy the use of their purchase. As a rule of thumb, the further ahead the buyer makes their purchase, the deeper the discount they get. New-build and pre-build properties are generally sold at fair market value.
Buying off-plan property has a lot of similarities with buying new-build property. The key difference is that it is considered slightly riskier. This can make it more complicated to get financing for purchases. Buying pre-built property, by contrast, is very different from buying new-build property, even if it is almost new.
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The new-build property premium
There is really only one reason why new-build homes are sometimes considered questionable investments. That is the “new-build premium”. In other words, it’s the fact that new-build properties are often priced higher than older properties of an equivalent size.
It’s indisputable that the new-build premium exists, at least to some extent. Statistics on it vary according to sources. It is, however, generally agreed that the new-build premium varies both over time and by area.
Likewise, it’s hard to dispute that part of the reason for the new-build premium is the attraction of newness. That’s why most items carry some form of premium when they’re bought directly from the original owner. This can be lost if the item is sold immediately afterwards.
There are, however, other, legitimate reasons why there is a new-build premium. These relate to the fact that new-build homes offer certain advantages over pre-built properties. Most of these can be summarised by saying that new-build properties are, by definition, built to the most modern of standards. Furthermore, they are sold by highly professional sellers.
Here are some key highlights of what that means in practice:
New-build properties are highly energy-efficient
This has long been a major selling point for new-build properties. It seems like it will grow to be even more important. At a minimum, you can expect new-build properties to have the best insulation currently available. Increasingly, you can expect them to have additional energy-saving/generating features such as solar panels and/or heat pumps.
New-builds are very likely to be all-electric
After having resisted electric heating for decades, the UK is finally embracing it. There are two main reasons for the growing popularity of electric heating. The first is that it is vastly more environmentally friendly than gas.
Electricity can be generated from clean sources (including renewables). In fact, it increasingly is. Gas, by contrast, is a fossil fuel and always will be. This means that, in the short term, it is a major contributor to climate change. In the long term, it will run out. At that point, the world will be forced to use an alternative solution.
The second is that it is far less vulnerable to supply-chain disruption. The UK can produce a lot of the electricity it uses. It also has the potential to increase its production levels, especially from renewables. It is nowhere close to self-sufficiency in gas (despite the North Sea).
At present, the UK gets most of its imported gas from Norway. This is a relatively secure source for now. Even now, however, prices can fluctuate in line with the broader energy situation. At some point, the government’s contract with its vendor will need to be renegotiated. This has the potential to cause major disruption to the UK’s supply chain.
Getting rid of gas is good for landlords
For landlords, all-electric homes offer the added benefit of having one fewer compliance issue to deal with. It’s also harder for tenants to have accidents of any sort because there are no naked flames. This can help to make properties easier to insure.
New build homes emphasise accessibility
The newer a home is, the more accessible it is likely to be (and vice versa). Accessibility isn’t just about making it possible for people with mobility issues to live in a property. It’s about making it as easy as possible for anyone to live in a property. This means that emphasising accessibility makes a building more functional overall.
For example, people with mobility issues generally benefit from there being minimal to no stairs, reasonably wide passageways and plenty of room to turn. This is also very useful if you have children in prams/pushchairs. Even if you don’t, it helps with getting bulky items (like furniture) in and out of a building.
New builds often come with kitchen appliances
It’s fairly common for new builds to come with kitchen appliances. These are often high-quality and very energy-efficient. If you buy a new-build home before it’s fully completed, you may be able to customise certain parts of it.
New builds make for easy property transactions
When you buy from a property developer, you know that there’s no chance of the seller changing their mind. In particular, you know that there’s no onward chain to collapse and force the seller to stay put. You also know that once the seller accepts your offer, they will honour the agreed price.
Likewise, you know that the seller will actively work with your conveyancer. In fact, they may well provide the conveyancer with everything they need for their report. Even if they don’t, the nature of new-build properties typically makes conveyancing very easy. This is because the developer will have researched the area thoroughly to ensure that there are no issues with it.