Do New Builds Increase in Value Over Time?
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In the world of property investment, your decisions really do matter.
So, it’s crucial that you consider all of your options before taking a leap.
One of the initial factors you’ll need to figure out is your investment strategy.
A popular tactic at the moment is buying new build properties.
A new build is essentially a brand-spanking-new property that has never been lived in and has become an attractive option for many property investors.
With lower maintenance costs and modern furnishings, there is almost definitely a clear advantage compared to buying an existing property.
So, do new builds increase in value?
Is buying a new build a good investment?
Keep reading to find out.
If you haven’t heard already (apologies to frequent visitors of this site), the property market has become a hot commodity over the past two years.
According to Nationwide, house prices across the country have skyrocketed, with the average UK property reaching a record high in December 2021 of £254,822.
With huge capital appreciation also expected over the coming years, it’s no surprise that many are now considering it a great time to invest.
But are new builds worth it?
As briefly mentioned, there are a whole lot of perks to investing in a new build property:
The most obvious is that everything is new. As most new builds typically come fully furnished with all the necessary goods, your tenant can move in on day one and (hopefully) start as they mean to go on with a property that needs no costly or inconvenient repairs/renovations.
For investors, this also means that you can instantly start seeing returns on your investment.
With sustainability increasingly becoming a priority for homeowners and tenants, new build properties have a distinct advantage over older properties – a top energy efficiency rating.
As new build homes are built to adhere to current building regulations, they are more energy-efficient. This is excellent news for your wallet, as homes with high energy efficiency will not need additional features like double glazing or new boilers.
New build properties are usually purchased directly from the developer of the project, or the property investment company selling on the developers behalf, which can often dramatically speed up the buying process.
This is often a “chain-free” transaction, as buyers don’t need to wait for individual sellers to secure a mortgage to buy another home.
The question of whether new builds are more expensive compared to older properties depends on the property itself and the company selling it.
You may have heard of the ‘new build premium’ – this is a term used to describe this price difference that some buyers find between older properties and new builds.
The reason for this difference is that everything is brand new and completely unused and energy-efficient, and built to a (hopefully) high-quality spec.
According to the latest Land Registry data on the UK House Price Index in March 2022, the average new build property costs £373,663 – over £90,000 more expensive than a finished property.
While this price differs wildly depending on what type of property you purchase (i.e., an apartment versus a house), you could spend extra if you’re looking at a new build home.
But in general, are new builds more expensive?
You may be surprised to find that even though new build homes being purchased for residential reasons may be more expensive due to their demand and desirability, for investors, buying a new build can actually be more affordable.
Off-plan new build properties allow investors to purchase a property (normally an apartment) for a below-market value price as a way to entice buyers. In fact, roperties sold at RWinvest offer below-market value prices of up to 55%.
Many new build homes can be purchased through off-plan investment.
This essentially means buying a property that hasn’t yet been completed.
The advantage of buying off-plan properties is that developers will often offer incentives to convince you to invest, including free furniture packages and price discounts.
By purchasing a new build with a top developer or investment company, you’ll be saving yourself thousands of pounds.
So, there’s no denying that there are some advantages to purchasing a new build property.
However, much like buying a new Lamborghini, there can sometimes be some depreciation with new build houses and flats.
The reality is that any new build home could potentially lose value when it’s no longer ‘brand new’.
When looking at new build apartments sold by us at RWinvest, however, it’s clear that impressive capital growth rates are still possible when investing in new build off-plan properties.
Take our past completed project, City Terraces. A unit in this development was first sold for £125,995 in 2018, and then by 2021, had increased in value by 17.86% by the time it was resold.
So, with this in mind, when questioning ‘do new builds increase in value?’, the reality is that investors can definitely make strong capital growth returns on new build properties, as long as they invest wisely and purchase properties in high-growth locations.
If you’re interested in buying a new build property, you’re probably wondering how to minimise any loss in value and boost your chances of capital appreciation. Here are some key tips:
Picking the right location is vital in property investment, no matter which strategy you use.
Depending upon which part of the UK your chosen property is in, there are substantial regional variations in house prices, rental income, rental demand, rental yields, and capital growth potential.
By picking the right area for rental properties, you’ll be able to maximise your chance of a successful property investment.
Regenerative efforts are particularly desirable as they can directly impact public opinion, demand and, in turn, property prices. Nothing makes a spot more lucrative than population growth, and, as stated, regeneration helps massively in this department.
Projects that will improve local infrastructure and transport are usually an indication that a location has the potential to become an investment hotspot.
Essentially, if you pick the right spot, there will always be demand for properties in the area, and, most importantly, your new build property will be likely to retain its value well.
You can read our complete guide to the best places to invest in UK property to learn about the best areas to invest in new build property for enhanced capital growth.
The type of property you choose to invest in can also help minimise any potential losses in the future – as well as the kind of tenant you choose to appeal to.
Buying new build properties means you could potentially be investing in several different strategies – including commercial real estate, student property investments, city-centre apartments, or family homes.
Your property type and strategy will likely depend on how much money you can spend and your investment goals.
For example, student properties and city centre-based apartments will be much more affordable than family homes.
While this could mean less capital growth in the long term, you are likely to enjoy higher rental income and rental yields due to the lower prices.
The type of investment you choose will also impact the location you pick.
For student property, you’ll want to buy properties close to university campuses in a location with a considerable student population.
For more on this, take a look at our 2022 student property investment guide.
The biggest takeaway, in general, is that if you want to avoid new build depreciation and make the most out of your investment, you must ensure your property generates as much long-term interest as possible.
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So, are new builds a good investment?
If you’re looking for an attractive investment prospect with high interest from tenants and the potential for strong growth, then yes, new builds make a good investment.
Do new builds depreciate in value?
In some cases, yes, but this is dependent on the type of property you buy, its location, and other factors.
With lower maintenance costs, excellent energy efficiency and a relatively easy buying process, there’s a lot to love about new build properties.
To be completely successful, it’s crucial that you keep up to date with all of the latest trends, do your research and maybe – just maybe – speak with some experts.
And, as much as we all wish it was so simple, you’re probably going to need a few more resources before diving straight into your new investment.
So, check out our 2022 UK Property Investment guide for the latest statistics and trends.
Or, if you feel like you’re ready to start taking your first steps, feel free to look at some of our latest properties to see if any are the right fit for you.
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