So what will make you more money – a new build apartment or a classic London house or apartment? The obvious answer is the one that you can buy at a bargain price, but that is easier said than done. My view is that, in general, you are better advised to buy a classic house or apartment in a good area.
Why then are there so many new high rise developments being built in London and why are they selling so well? The simple answer is that that is where the demand is at the moment. Since 2008 funding for new developments has become increasingly difficult to source. Banks, who are still licking their wounds from the financial crisis, wanted to try to dramatically reduce the risk of funding these sites. So they now will only release funds if the developments are pre-sold.
As you are probably aware very few of these developments are sold off-plan to British buyers. The majority of the demand comes from Asia and developers have been very successful in selling their properties at roadshows held in hotels in Bangkok, Malaysia, Singapore, Hong Kong and China. The atmosphere at these roadshows is sometimes similar to that of an auction where there is a frenzy to secure one of these “exclusive” apartments.
Indeed in 2010 there were probably some reasonably good deals struck by these buyers and sterling’s weakness made the prices all the more attractive. However, I would urge caution if you are thinking of investing in one of the numerous developments south of the river. Quite simply, most of the buyers do not have a clue what they are doing and are paying extraordinary prices for pretty poor locations (irrespective of what the sales’ brochure might suggest).
Of course many of these “investors” are in fact speculators. Buying off-plan and hoping to “flip” the property before they have to pay the full sum on completion. Indeed many have done very well out of this, but I fear that this game is about to be ruined.
Firstly, the sheer number of sites being built in fairly close proximity to one another means that there is an oversupply of similar properties. There is very little local demand for these apartments so to whom will the speculators sell their homes? Likewise, there will not be the rental demand and not at the yields that have been suggested. Quite simply, they are too expensive for the domestic market.
Of course some people will quite happily leave their apartments empty. However, for those that need to sell, they may well find that they can’t. In fact, I was speaking to an estate agent yesterday who sells the “apartments” being flipped. He has already advised a number of clients that their flats are already worth less than their off-plan purchase price. As you can imagine this has not been received well and just goes to show that prices do not always go up.
This does not mean that you should rule out new build apartments altogether, but you must be extremely careful. For example, I bought a number of apartments in The Knightsbridge when it was first built. These clients have made nearly 300% in 9 years. The key is to focus on good locations while ensuring that the price you are paying is not excessive. Unfortunately this last point seems to have been lost on many “investors” and it will cost them.
The interesting thing is that many people buying new-build properties do so because they think they will be less hassle than buying an older property. In many cases this is true, but the maintenance of older properties is not overly complicated and if you know reliable people is actually very easy. The service charges are also far lower so the cost of maintenance is likely to be less (you will not be paying for porters, servicing lifts, etc..).
More importantly a nice property in an established area is likely to rent more quickly and for a better yield. Indeed it is also likely to resell more quickly and at a higher price. So if you are planning to buy an investment at the moment, you need to be very careful about which new development you choose and you really should consider classic London properties that have proven the test of time.