Ryan Thomson, founder of PropertySeed, looks at why investors need to look at new build.
When most people think of property investment, they think of terraced houses, run-down flats and their local estate agent. Few consider new build property.
They may be missing a trick as the UK has a severe housing shortage.
Simple economics tells us that when demand outstrips supply, as it has in the housing market, prices will rise. This creates speculative opportunities for investors looking to gain from rising prices and rents. This in turn provokes animosity towards investors from ordinary buyers who blame them for stoking the fires and pricing them out of the market.
It doesn’t have to be this way.
You see, this unfortunate situation only applies to the existing stock of property. New development is another story altogether and is something which, if nurtured, can be all things to all men (or women!). Developing new dwellings directly tackles the undersupply problem, which would in turn relieve the affordability problem.
And, now, it can deliver the returns investors thirst for without any of the ill-feeling or moral misgivings we’ve experienced for so long in the secondary market.
I’ll get to the how in a moment.
So we need to build more homes. But to build more homes there has to be demand for new homes. Of course there’s demand, I hear you cry. Yes, there is huge demand – but for completed property. Homebuyers are less open to the idea of buying off-plan – something developers require if they are to start building in meaningful quantity. Time constraints and mortgage rules make buying off-plan an undesirable option for many ordinary buyers. This creates a gap in the market that savvy investors can take advantage of.
In step the property investor. Saviour of the British housing market. Being that investors do not need to live in the properties they buy, they are not so affected by the time involved in bringing new developments to market. The relatively large proportion of cash buyers, and less stringent criteria for buy-to-let mortgages, makes this group the perfect conduit for demand for new development.
The returns are more than satisfactory, too. Buying prior to completion can secure shrewd investors a sizeable discount to market value, meaning that by the time the project completes the investor has already made sufficient returns from capital appreciation – and if the market has risen in the meantime, all the better for them. To sweeten the deal some developers offer interest on deposits and most assure rental returns for the first 1-2 years.
Investment platform PropertySeed.co.uk is looking to lead the way in this revolution. The first online platform to focus on and harness the collective power of investors to drive new development, PropertySeed works by showcasing projects on its website and offering members the chance to buy individual units in the development. All purchases counting toward the success of the project. Buyers are free to sell their unit(s) whenever they like, even before completion, or they can hold on to them and service the UK’s growing private rental sector.
Whether you’re an experienced investor looking to expand your portfolio, a rookie investing in your first property or a saver looking to boost returns on your nest egg, you may want to consider exploring the exciting opportunities opening up in the new development market.