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New-build property sales

by Jonathan Pearson

The downturn is challenging for agencies specialising in new-build properties but at least it means that they can fight for fees

The housing market downturn is proving tough for all agents, but it’s arguably tougher for those specialising in new-build property. This has been caused by changes in mortgage lenders’ criteria and valuations. The assumption by financial institutions that new-build properties have an in-built premium is dead.

Valuation changes

It is widely accepted that new-build property has been overvalued in recent years. This has led to developers and agents no longer being able to value a new-build property based on the value of a unit in the same development. It is hoped that this will minimise the chances of the creation of a false price bubble, which deviates from trends in the wider market.

So, new-builds must be valued at the same rate as comparable second-hand homes. This obviously impacts developers whose profits have substantially declined over recent months as a consequence of these changes.

Mortgage lenders have also changed their position on studio apartments. A few years ago, studio apartments were considered an attractive option, both in terms of their size – they helped developers to meet Government housing targets by enabling them to build more properties per plot – and cost as they were often the only property type that first-time buyers could afford.

But lenders have had a change of heart and now regard studios as having less residual value than f lats with larger rooms. This inevitably makes them more difficult to fund for both developers and buyers, particularly now that the era of the high loan-to-value mortgage is over.

Mortgage constraints

Although 90% LT V mortgages are still attainable, their rates are unmanageable for many prospective buyers. It is a similar story with buy-to-let property, where rental income requirements have been increased at the same time as LT Vs have been reduced. In short, landlords now need a larger deposit to fund a buy-tolet mortgage and ensure that rental income far exceeds their mortgage repayments, on an interest-only basis.

A buyer’s market

New-build transactions have suffered as a result of the current market downturn, along with other property types. The fact that buyers are prepared to wait before making a purchase means that many new-build properties will remain empty for some time. Buyers are now far more discerning about the fixtures and fittings in their prospective homes and are prepared to wait until they obtain the right deal.

And, with more properties around, buyers have more choice in the marketplace. Whereas before developers would offer incentives to buy that included cars and holidays, nowadays clients are far more interested in discounts or something that adds value to their home.

And, since the days of rampant house price inf lation are over, there’s no incentive for clients to buy off-plan in the hope of making a healthy profit by selling the property once it is built. These days, potential buyers want to see the finished article and this has also had an effect on developers, who have also seen their cash f low substantially reduce. One positive aspect of the new-build sector is that it has survived the implementation of Home Information Packs unscathed.

Due to the government’s stringent new rules for housebuilding, every new-build property comes with all the proof required to make the Energy Performance Certificate merely a box-ticking exercise, while the HIP itself is simple to compile, which means that its preparation doesn’t delay the sales process at all.

Light relief

But, with the increasing pressure on housebuilders and developers, due to a fall in buyer demand, the future for new-build sales looks somewhat gloomy, hence the death of the 28-day completion period, which was previously enforced once a buyer had paid their deposit.

Developers are also showing much more flexibility in terms of offering part exchange and discount deals. Meanwhile, developers with large clusters of unsold units are letting them for a couple of years until the market improves. Although they will need to replace fixtures and fittings at the end of the rental period, it’s a more attractive option than having the property remain empty and unsold.

Finally, perhaps the most positive outcome of the market downturn is that vendors are less likely to ask for discounted agency fees. They appreciate the work that is going into selling their property, which is a good indication that people are uniting to help stimulate market activity as quickly as possible.

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