Off Plan new build concerns?

Hi Giles,

You don’t say if you need a mortgage.

A mortgage offer is normally only valid for a maximum of 6 months and Criteria can change at any time so there is no guarantee finance would be in place when you need to complete at this early stage.

Lenders are also stricter on criteria for new build flats and some lenders don’t offer finance at all. Criteria is also strict if you are above or adjacent to commercial property especially if it falls under the category of noisy or smelly.

Also check with a lender if they are near to maximum exposure in the development as they will only lend on a certain percentage in one area and also a maximum percentage in the block.

How is your 10% deposit protected?

Reply to the comment left by "Neil Patterson" at "20/08/2015 - 16:49":

Hi Neil,

Yes, I have made inquires with a broker and will probably go for a BTL mortgage, but as you say not until March/April next year because of the six month bit.

I will check on the 10% protection. Thanks, that is a very good point.

If I may ask. What are your thoughts on the apartments being above a row of shops?
I don't think there will be any takeaways allowed. As I understand it lenders don't always like it. This part of Biggleswade is extremely popular and it seems and anything half decent is sold within days.

Many thanks,
Giles

Hi Giles

The deal you are considering has nearly all of the features I advise my clients to avoid:-

1) Off Plan = high risk in terms of build quality, availability of mortgage finance when built, developer going under pre completion

2) over commercial. These are finance able but on a restricted basis. Finance ability affects resale value

3) new build is always sold at a premium

4) Risk of buying in an investment Ghetto. If all properties are sold to investors then you will always be in competition with them from the off, especially with flats when they are all completed at the same time and all desperately looking for tenants

Sorry to put a downer on things but I would advise you to put your money into an established development with a high concentration of owner occupiers
.

Reply to the comment left by "Mark Alexander" at "20/08/2015 - 19:04":

Hi Mark,

Thanks for comments and no it not a downer. I appreciate your input to come to the right decision here.

In response to your comments. I agree with your observation on new builds and apartments in particular. I am constantly being bombarded with emails for huge off plan blocks of flats in Manchester of which I am extremely weary.

Where this one is hopefully different - Not sure if this will make any difference to your observation but here goes.

1. These particular builders have been building houses on this site for the last five years and as I understand they are going be there for another five years at least. My guess is they need to be quite careful about supplying inferior quality buildings. All assuming the market remains buoyant of course.

2. There are hundreds of free hold owner occupier houses on that site already

3. The block of apartments I am interested in has sixteen first and second floor flats only. Eight privately owned

4. The surroundings and immediate square will consist of shops, gyms, retirement complex, owner occupied houses, school etc

5. There are two well known builders and possibly others on the site

6. Other then the deposit I would only really start paying for the property in nine months time on completion. Paying this years prices.

7. My mortgage in principle has already been accepted

8. Demand for housing in the area is huge.

Many thanks,
Giles

Reply to the comment left by "Giles Peacock" at "20/08/2015 - 22:52":

Seems like you've convinced yourself its a good deal Giles.

What is it about these apartments that really attracts you?

If it that they are more anaesthetically pleasing then a two up two down house in an established area?

What are the cost/yield comparables?

Have you factored in ground rent and service charges, i.e. deducted them from annual rent when comparing to a little house and the available yields?

A very famous saying from Donald Trump about how to make money in property is "don't wait to buy property, buy property and wait"

I change that a bit to; "buy the right property and wait."

I'm not saying you've got a bad deal, I'm just trying to help you make the right decision by playing Devils Advocate.
.

Reply to the comment left by "Mark Alexander" at "20/08/2015 - 23:08":

Hi Mark,
I have been trying to find a property for some time. My plan was to flip, however with the way the market is particularly in the South East with almost everything, even in very bad condition being sold for a premium and offering very little or no equity.

I suppose I have got to the point where frustration has set in and this new build seems like a reasonable idea mainly due to being able purchase at this years prices, yet start paying for it next year. Of course I realise this is not a bargain and this purchase would be based on the assumption the market continues it upward trend well into next year particularly in the popular locations. On completion I would decide on selling or BTL. Rented property is huge demand around there and returns are good for the South East

The cost per M2 /yields in new condition/renovated are comparable to most in the area

If I could find a "reasonably" priced freehold house that ticked most of the boxes I would take it instead without any hesitation.

Thanks again

Hi Giles,

I have bought 3 similar new builds and they are gold mines in my opinion.

I have also looked at Biggleswade and the area you are discribing and I would definitly go with it.

I have bought one new build in Barking above the shops and had no issues with it neither from banks or tenants.

Actually, I only buy new buils now because all the points your have mentioned yourself:

1) No need to discuss deal with private person (who can pull out anytime or just become greedy). With developers you can get some discount (or at least your stamp duty paid) and if deal is done it's done.
2) Buying off plan, you are essentially buying the features so in 6-8 months you can make some profit already even from your original 10% deposit paid. Just an example, I've reserved my Barking Flat and paid 10% deposit in January 2014, but the time it was ready in December 2014 and I have paid remaining money (with help of BTL) I've already made at least 30K, which was much higher than original deposit I've paid.
3) New builds don't have any nasty suprises and comes with the warranty.
4) You usually have a good managment company looking after them.

All for all, I believe new builds (especially off plan) are the best option now in the South. It's a different story in the North, I know.

Konstantin

Hi Giles,

I bought in Aug 2013 two off plan flats in Ashford, Kent ( property hot spot with great demand) and I can say that it was a bad decision. I bought it with a discount with intention to sell it with a profit before completion. Completion was supposed to be Oct 2014 and it is August 2015 and we still haven't completed! I sold one flat with a good profit but I wasn't able to sell another one because of competition from other investors. There was also a problem with mortgage because of commercial units at the ground floor.

I would advice not to buy off plan.

Joanna

I'm biased as I am a small developer as well as a landlord, but I feel I ought to speak up for the new-build industry as I feel they are sometimes unfairly criticised. In reply to Mark's points:

1) Off Plan: your off-plan contract cannot oblige you to complete, so you always have a get-out option, and you will have plenty of opportunities to inspect and require any snags to be corrected before you complete. Contemporary standards of construction for apartments in particular are far higher than in the past - building regulations require strong sound-proofing, noise-proofing and fire protection measures, so that each flat is effectively a sealed self-contained unit, not counting floods from above. Decoration standards and cleanliness should be higher compared with second-hand properties, as everything is new, and your maintenance costs will be minimal. The chances of a developer going bust in the current market are tiny. And the low heating costs in modern well-insulated properties will be a positive marketing point for many tenants.

2) Finance: DYOR. If there is restricted mortgage availability, you will find this yourself and it is a perfect excuse to negotiate over your sale price. You should get a cheaper flat than in a non-commercial block and you'll probably see no difference in the rent you can achieve, i.e. better returns.

3) "new build is always sold at a premium" - I'm sceptical. Since 2008 RCIS explicitly instructs its surveyors to include no such premium in their valuations. Arguably builders should get a premium, given modern build quality and dramatically lower running costs compared with old properties (and the fact that developers have to pay for social housing and infrastructure on top of ludicrously expensive land), but in my experience they don't: if anything, buyers are innately suspicious of developers and reluctant to overpay, whereas they ask far fewer questions and have much lower expectations of domestic sellers who are trying to flog them their rancid inefficient "poorly-maintained but characterful" old houses.

4) Risk of buying in an investment Ghetto. Possible: DYOR. The same argument applies in other areas, such as around universities, where many of the houses have been converted to houseshares. Also, a ghetto might just mean "properties attractive to tenants": a clean, new flat in a modern block with good parking and transport links perfectly suits a certain type of tenant.

Ultimately I think it comes down to your gut sense of what the local rental and buying markets are like, and whether this flat has a viable place in those markets. I would have a good chat with local letting agents - with due allowance for over-enthusiasm on their part as they will be hoping for your business - about local market trends, the demand for furnished versus unfurnished flats, etc. The fact that this is a large development with five years of history behind it is potentially useful - you can ask about the experience of existing landlords. Try your local branch of the NLA or RLA and ask their opinion too.

I'd also ask about the market for flatshares: when I once let some two-bed flats in a development I built, I found my best tenants as separate singletons through spareroom.co.uk: first a new university lecturer who was on her own and loved the option of sharing a new flat, as she'd been slightly dreading joining a larger houseshare and inevitably getting the worst room there, and then a young employee of Barclays Bank. They got on fine, and when the bank chap eventually left, it was relatively easy to replace him without incurring a void period and having to find new tenants for the whole flat, pay fees to letting agents, etc.

Reply to the comment left by "Joanna Styrczula" at "21/08/2015 - 12:51":

Joanna,

May I ask you if you have bought from the national developer or smaller local one as usually national developers don't delay completion as they want remaining of the money for the properties as soon as possible as it goes on their investors reports every six months.

Have you had intention to let the second flat for some time to wait until other investors shifts their flats?

Thanks