Do new builds lose value?

The chances are, if you’re in the process of purchasing a new build property, you would wonder if it loses value over time. 

This is a common worry among potential homebuyers, and for good reason. It’s important to understand the potential risks and benefits of investing in a new build property before making a decision.

In this article, we will explore the topic of new build properties and whether they are at risk of losing value over time. We will address common questions such as if new properties experience a decline in value.

In addition, we will provide valuable insights on what steps can be taken to prevent a new build property from losing value.

So that you’re familiar with new builds, click here so you’re able to find out in further detail before you read on if you’re not sure what this category of housing entails.

A new build property

Can new properties experience a decline in value?

New build properties can certainly lose their value over time and they are known for doing so. However, it is not guaranteed that all new builds lose their value.

It simply depends on the demand for poetry in the area and what the property was bought for predominantly. There are also secondary factors like the economic climate.

The reason why new build properties are known for declining in value is that they are often sold as part of a development where the rest of the development hasn’t completed construction yet.

As a result, it is hard to work out if the final value of the entire estate will be reflective of the current new build house price. 

Also, if there are a lot of houses built on the development, this could lead to an increase in the housing supply and hence the demand for housing is met in the area and house prices go down.

As you can see, there are a range of things that a home buyer or a landlord should look out for in the process of buying a new build as developers will often not mention any of these risks when buying.

What factors contribute to the devaluation of newly constructed homes?

New builds may lose their value for a large number of reasons as listed below. In general, you should look out for all of them when buying and consider these as a valid risk in every decision you make.

For instance, if the price of a new build seems like it is fair for the price but you are comparing it to a second hand home in the area, perhaps reduce the price you offer because of the added risk involved.

New builds are overpriced 

Compared to second-hand homes in the area, there is a good chance that the newly built property is overvalued based on the facilities of the household.

For instance, if there is a house with a four bedroom in the property and there is another new build with the same sized four bedrooms and equivalent rooms, the new build will likely be priced more.

This is because the developer will charge the buyer for the fact that the property is new. Newer properties are likely to be more desirable because no one else has lived there.

This results in everything working perfectly and no renovation or home improvement being required. Also, the new build could also be built in relation to the buyers preferences if they buy the house before construction starts.

However, this reason for developers charging more for a property means that it is hard to tell if the true value of the property is in fact right and this could result in the buyer over paying.

expensive new build house

Inconsistent standards 

In new build construction by developers, construction is done quickly because there is a large pressure on construction companies to be able to produce a certain amount of homes per year.

This is because of pressure from developers to make a profit as well as pressure from the government to be able to produce affordable housing for members of the public.

As a result, there could be defects and faults in a property that need the buyer to invest more money into repairs. This could deter new buyers from purchasing a new build later down the line because of the poor construction.

This is despite the fact that there is usually insurance for new build properties who have just been constructed. A lot of buyers are unaware of this and don’t know there is usually a ten year period where repairs are free of charge.

Nonetheless, there is still the chance that some could be deterred because of the added effort it will take to go through the snagging period of a new build.

For more on what snagging periods are click here to read an article on the topic.

Also, if any repairs crop up after the insurance period for the new build is over then the homeowner will have to cover repairs themself and this could cost them a lot of money.

New builds may not have the best location

Because new builds are usually done in large developments, they may not have the best location. Especially as other new builds are being constructed around them, it is hard to tell what the location will turn out to look like.

For instance, when a new building is first bought, it could be this case that there is a nice view of the real estate but by the time the rest of the development is constructed, this view is filled with other property.

Furthermore, large developments require a lot of land so by nature this may result in the area where a new building is constructed being out of the way and perhaps not near transportation.

This will vary though as there are certainly new builds that are built in desirable locations.

Developers may decrease prices 

If you are one of the first to buy on ao new build development, you may think you’re getting a good deal. However, there is a chance that demand for the development will fall over time.

In order for a developer to make their money back from the deal, they may have to reduce the price of new builds in order to get them all sold.

As a result, the new builds that were sold at the start of the development will also drop in value. It would not matter what they bought it for if there are other houses in the area selling for far less.

This is a risk you take when buying a new build because you are at the mercy of developers pricings and what a developer sells for later down the line is completely out of your control.

Overdevelopment 

Developers may put forth a large supply of housing without calculating what the demand is for the area accurately could result in there being an oversupply in the future.

This is probably the biggest factor for houses losing their value over time. If there are thousands of houses being built in one specific area in a few years, the chances are that the demand for these houses will not keep up with supply and hence the price of houses will drop.

housing oversupply with a new build development

Housing market downturn

As there usually is over the course of decades and years, there are usually periods where there is a recession or inflation gets so high that banks have to raise the price of interest to reduce buying power.

This results in the buying power of aspiring homeowners and landlords being reduced significantly. Higher interest rates result in less mortgage being able to be taken out on a property.

How much value can a new build property potentially lose?

The general amount that a new build is seen to lose is around 7’% over the course of five years. However, this doesn’t represent all new builds.

Constructions that haven’t gone very well and end up with a large oversupply of housing and  lack of demand have been known to lose up to 30%.

On the other hand, as house prices tend to go up over time, there have been cases of new builds proving to be excellent investments and experiencing a large amount of capital appreciation and going up by 30%.

Is it a wise decision to purchase a new build property even if it is expected to lose value?

Sometimes, a property can be very well suited to your taste and you aren’t necessarily buying for an investment but rather a home you plan on staying in for a long time.

As a result, in cases like this it is likely that even if a property goes down in value it will be well worth the money.

Especially if you have other property investments or you aren’t relying on the house you’re buying to help you in the future for retirement for instance, there isn’t much need to look for property depreciation.

However, it is also worth noting that even if a newly built property is predicted to lose value in the short term, over decades, most properties will appreciate or at least hold their value.

The UK is somewhere where a lot of people would like to live due to it being a first world country and there being a lot of opportunity in terms of jobs and schooling.

So, the forecast looks good over time.

Are newly built homes more difficult to sell than established properties?

Whether a new build home is better able to be sold as opposed to an older property is completely up to the factors affecting the price of the property.

However, in general, new builds are harder to sell because owners often want more money for them than they are actually worth because their new build has declined in value.

This is why it is seen that newly built homes are more difficult to sell.

Is it possible to negotiate the price of a new build property?

New builds, as opposed to many other properties, are better able to be negotiated against. This is because they have never been sold before so there is no price to base the value of the property on.

In addition, it is easy for a buyer to bring up a lot of faults of the new build development that a developer is perhaps looking to get away with to help reduce the price further in negotiation.

For example, if a buyer notices that there are a lot of service charges that must be paid in the development of the property, this could be a good reason to reduce their offer.

negotiating the price of a new build

What steps can be taken to prevent a new build property from losing value?

There are a few things you can begin to do in order to make the value of a property stay the same and better yet, appreciate in value. 

Research the developer

First of all, researching the developer to see if they have a good reputation and tif their previous development has gone up in value is a great way to ensure you’re able to buy a property that holds its value.

Developers that don’t know about the long term future of a new build should be avoided as they will often sell a property for far more than it is worth in order to turn a profit.

Examine the property management company

Sometimes as you buy a new build, there will be other added services of the property which result in service charges. This is usually paid to a block manager or a property management company.

A buyer should research who this is in detail so you’re able to predict if the company would be responsible for valuing a property over time.

Looking at company reviews, their company policies and if they have experience managing a similar development to the one you’re buying are all things you can do as part of your due diligence.

Conduct a snagging inspection

New builds will usually go through a period called a snagging inspection period. As a buyer, it would be a good idea to make sure you’re sure that this goes ahead and the builder is responsible for any costs incurred.

A snagging period is where any defects or faults as a result of the property being brand new are rectified cost free as part of a new home warranty.

Check for any future development plans for nearby land

If there is a nearby development, it could be that this development takes away the value of the current build you’re buying.

New developments raise the supply of housing and hence the demand for housing is met. As a result, those looking to buy a house will be able to pay less as housing becomes abundant.

Is it a worthwhile investment to purchase a new building property?

New builds are definitely worthwhile if you’re okay with holding a new build property for the long term

Learn how to add value to a home in order to make sure that a new build appreciated in value over time if you’re looking to purchase a new build for an investment.

How can you determine if the price of a new build property is too high compared to similar older homes?

There are a few ways of valuing a property to make sure that a new build isn’t high compared to properties that are older. First of all, you can check out the five methods of valuing a property. 

What is the average cost of new build properties compared to established homes? 

The price for new builds compared to older homes varies a lot throughout the UK.

County

Average new build price

Average existing house price

New-build premium

Scotland

£229,159

£158,862

£70,297 (44%)

North East

£206,963

£135,584

£71,379 (53%)

North West

£250,579

£182,270

£68,309 (37%)

Yorkshire

£232,671

£179,642

£52,028 (30%)

East Midlands

£292,664

£209,770

£82,895 (40%)

West Midlands

£294,479

£213,450

£82,029 (38%)

Wales

£239,299

£176,594

£62,705 (36%)

East England

£389,416

£306,335

£83,081 (27%)

South-west England

£331,819

£276,985

£54,834 (20%)

South-east England

£401,362

£340,295

£61,067 (18%)

London

£508,782

£493,617

£15,165 (3%)

To conclude

New build properties are a special class of a property that can go up in value quite a bit but sometimes they do in fact lose value. This can be terrible for those who are already financially struggling.

In fact, new build properties are often purchased by those who cannot afford to put down a large deposit so they do attract a buyer who is likely to not have that much capital anyway.

This is all the more reason for those purchasing new builds to do their due diligence and make sure that they follow this article on details and learn how to prevent their property from going down in value.

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donnell-bailey

Donnell Bailey

Property expert

Donnell is a property expert focusing on the property market, he looks at a combination of legislation, information from property managers, letting agents and market trends to produce information to help landlords.

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