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In the January 2010 Issue of Property Investor News
New Build: Demand & Supply
Make £1m by investing £1! Buy a property with no money down! Being a reader of PIN magazine, it is more likely that you are an experienced, pragmatic investor, but many people were caught out by the 'get rich quick' property clubs touting the above phrases and it seems too many have lost their life savings by swallowing the above patter, hook, line and sinker!
Why? Just before and during the peak of the property market, too many people thought that property could do no wrong and there was still only one way forward - up! Many did not anticipate the property slump that followed, ignorant of the fact that if house prices did indeed carry on increasing as they had been it would have been completely unsustainable. Prior to the downturn, new-build properties carried quite a high premium in both rents and inflated capital values.
Most new-build properties that come to auction are repossessions and David Sandeman, managing director of the auction data specialists Essential Information Group (EIG), says: "The clearance rate sales of new-build at auction is very high. They are practically all repossessions as many people fell foul of the property clubs so lenders who have these repossessed properties put them in auction to get the best price."
Sandeman believes these properties are now far more reasonably priced, as the average discount to open market value is -46% compared to when they were first bought as a new-build. He says: "One reason why the discount is so huge is because many had such false valuations to begin with. If first sold as a new-build for £200,000, it will typically sell at auction now for around £110,000."
According to EIG, in the year-to-date, there have been 740 new-builds offered at auction, of which 536 have sold (76%). From 1st January 2008 - 23rd November 2008, there were 1,436 new-builds offered, and of these 1,036 sold (72%).
Capital values
Prior to the credit crunch, the type of property typically touted as investments were new-build flats, often built in citycentres, and often significantly over-priced due to suspect valuations. Hence why, according to Principal David Moor, a chartered surveyor, new-build flats are now worth -50% less than at the peak of the market.
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