There is huge debate about which type of London property makes the better investment. You have probably heard the arguments: new builds are better because they are easier to maintain, traditional are better because they have more character, better ceiling heights, etc.
Of course, whether the property will be a good investment has a lot more to do with the potential for capital appreciation and the ease with which it can be let to tenants. Ultimately price and location are key. Now this may seem like a facile point to make, but it is overlooked all too often.
Some of my clients have done extremely well buying new build properties in prime central London. For example, the Knightsbridge Apartments, which were built in 2005 have proven to be an exceptionally good investment with a client selling his apartment for a 227% profit in eight years (as it happens they bought the property as their home rather than as an investment, but the increase in value was not an unwelcome bonus). This was the best building in London before the development of One Hyde Park and the development was the first to incorporate genuinely high international standards and facilities including concierges, valet parking, gym, spa and other amenities that now seem standard for super-prime developments.
Of course prices in 2005 were at £1500 per sq.ft. (which seemed high then).The clients who bought have certainly benefitted from the increase in international interest in the London market since 2008. It must be noted, however, that the location is superb, the facilities are excellent and still relatively rare for London and Knightsbridge. It is this combination that was the recipe for success. The return would have been exponentially lower if any one of these factors had been missing.
The reason I point this out is to highlight the dangers of buying new developments at the moment. Firstly prices are much higher. They could go even higher, but there is less margin of safety. More importantly, however, is the razzmatazz that surrounds some of these developments. It is a well-known fact that many of these developments are sold off-plan in Asia and the Middle East. Unfortunately, much of the promotional material can give a somewhat rosy picture of the location. For example, pictures of the river, Buckingham Palace, Harrods, Hyde Park and Bond Street are often included in literature for developments which are in reality some distance away. Indeed, just because a location is inside Zone 1 of The Underground does not mean that it is a prime location.
I do question the wisdom in buying properties in developments which are not in prime locations, despite what the developer may suggest, especially south of the river. The majority of the apartments will be bought by investors, so they will be chasing the same pool of tenants. The projected rents (emphasis on the word projected) suggest that the tenants will be relatively high earners who are likely to work in the City. Firstly, although the financial sector will probably continue to do well, the number of people employed is unlikely to grow in the foreseeable future – Banks are cutting their overheads and are likely to focus on remaining lean for some time. Secondly, the target tenant will probably want to be far more central to the hub of London’s nightlife.
I may be proved wrong, but it is essential that you do your research before you buy to make sure that reality lives up to the idyll portrayed in some developers’ brochures. This is also true of traditional properties. Remember, the estate agents’ role is to sell their clients’ properties for the best terms possible, which often means the highest price. Therefore it is essential that you are very clear on what other properties have sold for in your target area and can make your own judgement on value and not be reliant on data provided by the agent selling you the property. As we all know, statistics can be manipulated to tell any story.
Good luck with your search for a home or investment.