New homes are the lifeblood of the housing market and the government has been working hard to keep the pipeline of properties flowing with both its billion-pound schemes to stimulate demand and attempts to free up the planning process.
The number of new homes being built by developers is increasing, in some areas by up to 20% year on year, and many parts of London and the Home Counties are now bristling with construction cranes.
Which is good. Newbuilds have always been popular with landlords for a variety of reasons and offer a different kind of investment opportunity when compared to older properties. Here are some of the key reasons why:
They are popular with tenants
New-build developments tend to offer – or be near – the kind of lifestyle activities that younger renters want, and therefore these developments attract them. Access to gyms, bars, restaurants and transport links are all important factors for younger renters; and new-builds often now feature these ‘must haves’.
Many tenants also feel that a property within a new-build development is a lifestyle ‘upgrade’ because, compared to older Victorian or post-war properties, they are better laid-out, designed and fitted out.
Buy before they’re built
Some landlords like new-builds because they can buy the properties ‘off-plan’ which often means before construction starts, sometimes with as little as a 10% initial deposit.
Then, as the build continues the value of the property increases – assuming local house prices are rising – even though it isn’t finished yet. Landlords either then sell them just after they have been completed and bank the profit, or move in tenants and sell up a few years later.
Simpler to buy
New homes aren’t part of a buying chain and, because they come with an NHBC guarantee, usually don’t need a survey either so are quicker and easier to buy than older homes.
They rent for more
Newbuild properties rent for between 10% and 20% more than period or other older properties, although this premium can be eroded when several large new-homes developments come on stream in a locale and supply is greater than demand. So pick your location carefully.
Most new build homes whether they are apartments or houses come with an NHBC guarantee. Called Buildmark, it offers anyone buying a new home protection against construction errors for up to ten years after the build finished. Buildmark also protects those buying off-plan against the builder going bust and the buyer losing their deposit.
In April 2018 new laws come into effect banning landlords from renting homes with an Energy Performance Certificate with a rating of F or G, meaning that some landlords will have to spend considerable sums upgrading the insulation on their properties to reach the new minimum standard.
New build homes avoid this problem entirely because they are built to the latest and most stringent insulation standards and are usually ‘A’ or ‘B’ EPC rated – which also makes them attractive to tenants because their household bills will be lower than if they rented an older property.