BTL near a future Building Development!

Hi Damon,

I have hijacked the picture for your readers question. (Perks of the trade lol)

This is very simple to answer with my Economics hat on.

In a mature market, such as the housing market, price is controlled mainly by Supply and Demand. This is using the first rule in economics which is Scarcity = everything has a value if it does not have an unlimited supply such as fresh air.

Therefore to answer your question if you increase supply directly in your area you will introduce a negative pressure down on price. That does not mean Price cannot increase, because demand could increase by a greater amount.

The diagram above shows the increase in supply but if demand increases that line will move to the right and could cancel the movement of supply out.

Reply to the comment left by "Neil Patterson" at "12/09/2014 - 14:27":

To an extent I agree, however, the new development is more likely to be happening because the developers believe that demand exists and supply does not. In many areas there have been very few sales in the last five years or so due to perceptions of not being able to afford to sell due to negative equity. If this is the case, and the new development sells at higher prices due to successful marketing, this could actually drive up the value of neighbouring properties too.

Modern economics is as much about perceptions as it is scarcity. Isn't that why the BoE have been trying so hard to manage perceptions of late?
.

Reply to the comment left by "Mark Alexander" at "12/09/2014 - 14:47":

Ah yes you actually agree with me completely without knowing it !

The factors you mention all affect demand.

Also, a new development of 450 houses should nowadays come with a required set of infrastructure, such as a new primary school, highways improvements, amended and improved bus routes, possibly the last key bit of funding for a new sports centre, and so on. All of this can increase the attractiveness of an area. Negatives can include poor street design and insufficient parking, so cars spill over onto neighbouring streets, and the arrival of significant amounts of social housing, potentially with "problem" tenants decanted from other areas.

There may also be extra BTL competition, as a certain kind of landlord prefers new-build and will buy up a proportion of the new properties. You may be able to compete with them effectively if you can afford a lower rent, or kit out the house attractively; period properties can also have larger rooms.

Without knowing more about the exact location, I can't say anything really specific. I don't think there's much to fear - there will be positives as well as negatives - and you just need to focus on why you bought in this area in the first place: the fundamentals of location - access to work, shops and other facilities, the attractiveness of the housing, and so on. If those are right you will probably be OK.

The main short term feature I would ascertain is the likely route for construction transport, i.e. lorries. How far away will you be from these roads? What reduction in your yield would occur if you are near them.? Longer term, you will be competing with new builds. How will yours compare? I think you are now in a good position to negotiate on price following your new information.

The seller would know this would come up in your searches, at which point the seller would expect you to question the price.

Hi, Thank you so much for your comments.

The house is in good condition and was built in the mid 1980's, so would just be a bit older. The construction traffic would be far away from the property so I don't see this as an issue....

Tony - I have attached the link below to the site in question. If you do find time to have a look, I'd much appreciate it. The property is midway between Newton Lane and Cooks Lane on the left hand side. Thank you.

https://www.oadby-wigston.gov.uk/pages/latest_news_wigston_direction_for_growth_concept_masterplan

Reply to the comment left by "Damon Wilkins" at "12/09/2014 - 17:56":

Thanks Damon, OK, this development has clearly been long in the reparation, using the recreational land deliberately left undeveloped just south of Mablowe Field. From the masterplan of planning application 13/00403/OUT, it will be used for the principal access road into the existing estate South-east of Leicester.

I don't have anything to add really: £123K for a two-bed house sounds extremely good value from my location in south Oxfordshire, but it's all relative. From a construction point-of-view, if we assume it's 80m2 in size, even a national housebuilder using all the tricks of their trade, a basic fit-out and benefiting from economies of scale, probably couldn't build it for less than £56K, including landscaping. And then the house would have to cover its share of the access roads, the amenity spaces and playgrounds, the land, losing around 33% of the site to social housing, and the S106 or CIL roof taxes imposed by the council. And then there's corporation tax too if they managed to scrape a profit. As a small developer I know I couldn't build a 2-bed house for £123K.

So from a construction POV, these new houses will almost certainly cost more per m2 than your house. As to whether they will damage your value, it's very hard to tell. You could try renegotiating the price, but if you are confident in the location and the level of demand, just stick to your guns. Rightmove are marketing a 2-bed terrace for £600 pcm in nearby Kelmarsh Avenue, which is £7,200 on an investment of £126K including costs: a gross return of 5.8%. Put another way, if you invested, say, 25% and the rest is a mortgage, then your gross return on capital invested is 22.85% p.a. I call that pretty good, and it must considerably outweigh any possible fall in the value of the house due to this new development.

The answer to your question is where is the best secondary school in Leicestershire? Well some think the catchment area is in Wigston. Do seriously investige how much social housing is going to be on your door step.
Compare the rental prices with the surrounding areas that might give you an indication of demand.

I think the area is a good one and the demand is there as when properties have come up for rent on this estate in the past, they go quite quickly. All things considered I think I'll run with it.

Thanks for all the advice.....

Damon