New build - New challenges
Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including City AM.
FOUR years ago I met an investor who proved to be one of the buy-to-let world’s biggest new-build property fans. She focused on houses, not flats, and in a booming market she was relentless about getting advance warning of any new developments. She stalked sales offices across southern England, doing whatever it took to be remembered by the staff – that way she was always the one they called if they had any sales targets to meet and needed to find a willing buyer fast. We talked at a property show in London and she said she managed to drive some tough bargains, even in that booming market. She liked discounts, fast turnarounds, fixtures and fittings in show homes. She played any trick in the investment book to add value to her shiny new portfolio.
I’ve lost touch with her now. But I would love to find out how she is getting on in today’s very different economic climate. If she is still a buyer then the discounts she’s getting must be enormous. And no need to make much effort to be remembered by sales staff. Almost any show home visitor is worthy of note in today’s super-slow market.
Barratt has said sales fell 17 per cent in the second half of 2007, compared to 2006. The company is predicting flat prices in 2008, while other developers are coming out with even more pessimistic predictions. So is it an opportunity or a warning bell for buy-to-let investors? The signals from Barratt aren’t clear. Obviously it wants to shift as many units as possible, as soon as possible. But it is saying that when liquid buy-to-let investors approach asking for 15 per cent discounts on deals for ten or more off-plan units it is turning them down. If that’s right then the vultures aren’t getting everything their own way – at least not yet.
The new build investors I do speak to today say that 2008 is going to see an even bigger divide between new-build houses and apartments. Serious, experienced investors have been walking away from the latter for some time. The buyers have tended to be first-time buy-to-letters. The attraction is the idea of low maintenance, easy to run properties that will be snapped up by well-heeled professional tenants.
But check the lettings situation in city centres around the country and it is obvious that there are a lot less of these wonderful people around than most people had hoped. Empty apartments have effectively given us buy-to-leave, though only experienced investors with deep pockets and strong income streams from other properties can really afford to wait for capital growth to give them some sort of return on their investment. Others have to bite the bullet and give up – hence the fire sale prices at estate agents or, worse, the repossessions coming up more often at auctions.
Maybe a few extra tenants may slip into the sector next year if housing market uncertainties and the credit crunch keep potential first time buyers in the rental world for a little longer. But as each new apartment block or warehouse conversion comes on stream the situation is set to get even harder. No wonder some lenders have stopped offering residential, let alone investment, mortgages on new-builds in some areas.
Will new-build houses be any different? My voracious buyer of 2003 thought they were, even in the boom times. She reckoned that the yuppie city centre dweller was a volatile new demographic. The market for ordinary family homes didn’t seem as glamorous or as visionary. But it was tried and tested. Check out the portfolio of buy-to-let giants Judith and Fergus Wilson and you’ll see they’ve got the same strategy. Ordinary homes for ordinary people have put them into the Sunday Times rich lists.
Another buy to let investor I am still in touch with is a big buyer of big homes, sometimes new-build, sometimes not. He did well when the housing market was booming because enough families were selling as soon as they got a good offer and needed somewhere to rent while they waited for their dream house to become available. He is now convinced that his market won’t disappear in the slowdown. Families who decide to improve, not to move, may need alternative accommodation for six months or so while they have the builders in, he says. Properties in the catchment areas of good schools aren’t cheap, but neither are their rents, he tells me – he’s a keen new build buyer on developments in those areas because he says demand will always remain high.
Overall it really is a time for new challenges in the new build market. But then that’s why property is such a great sector to write and read about – and a great one to invest in.
