user.first_name
Menu

News

Price lag on new build calls value into question – LCP

vickyhartley
Written By:
Posted:
July 15, 2014
Updated:
July 15, 2014

With £1.2bn of new-build sales so far this year, the 20% price premium paid for new properties calls the longer-term value of new homes into question, said an asset manager.

Research by LCP, a specialist fund and asset manager, suggests the ‘massive marketing hype’ surrounding new units and a building boom will hold the property value down significantly over time.

When almost half of new-builds are bought by buy-to-let investors, LCP warned price growth has lagged 64% behind the rest of the market in one well-known London development, increasing just 6.4% a year since 2003, against a 9.6% p.a market average. This same development also took a harder hit during the credit crunch where in 2009, prices fell back to their 2004 level, where in the UK market, other prices were 42% higher.

The biggest risk to investors is the chronic oversupply of new-builds, both to buy and to rent, which continues to hold yields and prices down. In Wandsworth, home to the well-publicised Battersea Power Station and Nine Elms developments, there are 14,306 units in the pipeline this year where Tower Hamlets and Southwark have 33,646 units under development.

Re-sale prospects for new-builds also continue to be a problem, said LCP, with other new-build projects drawing interest away.

LCP warned with roughly 50% of these properties bought as speculative investments, prospective landlords could be losing cash over the long-term.

Sponsored

How the housing landscape is set to shift

Sponsored by Halifax Intermediaries

Naomi Heaton, CEO of LCP said on new-builds: “Buy-to-let investors often see them as a hassle free alternative, which negates the need for searching and travel. They also offer a modernity which Asian buyers, in particular, associate with ‘high’ end. However, as investment choices, they need to be entered into with care.”

Heaton added that shrewd investors should also consider older properties.

“These might need refurbishment, but undertaking this offers the benefit of an immediate uplift in value, rather than paying a premium to a developer. This is a rare case where ‘age is a virtue’.”