New build or period property: Which is the better investment in north London?
11:55 05 February 2016
As Help to Buy London launches and buyers are encouraged to go new, what are people actually buying into in a new build development in north London?
The media is awash with new builds at the moment – how we aren’t building enough of them in London, how we need to find space to build more on, how we don’t have skilled workers to build them with and how they will be the solution to the housing crisis.
Various schemes have been launched to encourage Londoners to end their cultural fetishisation of period property and shift their aspirations from a Georgian terraced house to a technologically advanced eco flat.
Don’t fall foul of these potential pitfalls
1. If possible wait five to ten years and buy a second hand new property. That way you avoid paying the developer’s premium and you can see what effect the development has had on the area in the intervening years.
2. If you’re buying through a scheme such as Help to Buy you’ll have to buy a brand new build but there are still pitfalls you can avoid.
3. A new property in a good location is most likely to retain value. If you’re buying a flat look for good transport links and a bustling high street, if it’s a house good schools and green space are key.
4. Consider the size of the development and the variety of property types on offer. If there are hundreds of identical two-bedroom flats in one place their future value will be diminished as there’ll be gluts on the market.
5. Make sure the property has a NHBC warranty. This will give you 10 years insurance against any issues arising from faults during building.
6. Look beyond fashionable finishes and design. These will date. A good layout, natural light, outside space and location won’t.
7. Don’t be fooled by the developer’s smoke and mirrors. Show apartments often include subtly reduced sized furniture (a three quarter rather than a full double bed for example), mirrors and minimal storage to make them look bigger. Take a tape measure and study floorplans carefully.
8. Not all new build energy ratings are created equal. The minimum standard is a C rating and many carry that rating. An A for energy efficiency is likely to save you significant money in energy bills as well as doing your bit for the environment.
9. Try and buy towards the end of a development’s construction. You’ll struggle to sell while building work is still taking place on the site as buyers are unlikely to look at second hand properties.
10. Don’t forgo a survey. Just because it’s new, doesn’t mean there aren’t structural problems.
After all, the Georgians downed tools nearly 200 years ago and that period housing stock ain’t replenishing, itself meaning that for a large swathe of the aspiring home owning population new is the only way to go.
But it is exactly this scarcity that is part of the appeal – and bankability – of period property. New builds may sell at a premium, but which is a better long term investment: brand new build, or vintage home?
Research by estate agent Kay & Co found that in the area they operate in around Marylebone and Connaught Square, period properties experienced 27 per cent greater capital appreciation than new builds, increasing in value by 16.2 per cent a year compared with 12.8 per cent for new builds.
This lower rate of increase can be attributed in part to the higher prices that new builds command in the first place. Kay & Co’s research found that the maximum new build per sq ft asking price is currently £4,357 per sq ft compared to an average in W1 and W2 of £1,903.
As buying agent and property commentator Henry Pryor points out: “With a new build is you’re paying a business to produce a product that the second hand market doesn’t provide for.
“It’s like buying a new car, you should quite rightly have to pay someone for putting something together.
“And, as with a car, you pay a premium for something that’s never been used.”
Camilla Dell, managing partner of independent buying agency Black Brick agrees. “Often you do pay a premium of up to 30 per cent to buy a brand new build.”
According to Dell investors typically like new build flats because they entail fewer maintenance issues, often have facilities like a gym, pool or concierge that appeal to tenants, and should cost less overall as a landlord. They should also cost less for owner occupiers to run too, with superior energy ratings meaning cheaper bills and less ongoing maintenance.
“On paper a new build can look great: shiny, glossy, staged payments,” she says. But will it retain its value?
“A lot of the new developments can be sold overseas in marketing suites to people who don’t have access to the full picture and investors can get burned when they’re buying like this, which is where the services of a buying agent come in handy.
“You have to look at each one on its own merits.”
For James Morton, director of Hampstead estate agent Benham & Reeves, location is paramount when weighing up the relative benefits of new vs older property.
He says: “In Hampstead, Highgate and surrounding areas period properties tend to be in prime locations whereas new builds tend to be built in slightly secondary positions.
“For example, Finchley Road between Golders Green and Childs Hill, there’s a lot being built there at the moment but there’s not a lot else there. There are buses but it’s not near the tube.
“To find something new that’s prime prime prime isn’t very easy because there’s very little new build stock in this area because space is so limited.”
This means that the right new development in the right location will be very popular, even if the buyer is aware that it will lose its allure on resale.
“We sold a new development called Piano Yard, a collection of new build houses around a courtyard in Dartmouth Park. They all went very quickly at more of a premium than comparable period homes nearby,” says Morton.
But, that car analogy again, like a new car, the appeal is that nobody else has driven it. “After five years or so, this appeal is lost and you lose the premium based on that.”
When the right combination of location and luxury is found however, Morton says the new build is more likely to retain its value at a similar level to nearby period homes than new builds in less favourable locations.
He cites the Mount Vernon development in the heart of Hampstead Village as an example of a new build development based around a period building that was popular with Spice Girls and Premier League footballers when it launched in 1998 and remains desirable to this day, thanks to its premium location and the convenient lifestyle on offer.
“You have a 24-hour porter, beautiful manicured gardens, swimming pool, gym, underground parking complex, if you’re someone who wants a very neat lifestyle then it’s ideal. And the views are really quite something,” he says.
The figures don’t quite bear this out. The Land Registry shows that a three-bedroom flat in Highgrove Point, one of the buildings in the development, sold on launch in 1998 for £895,000. Five years later it was sold again for £1,273,000 and it sold in 2011 for £2,350,000 with a capital appreciation of 162.6 per cent over 13 years.
Certainly not a loss but less impressive when compared to a two-bedroom period maisonette on nearby Heath Street, also in the heart of Hampstead Village. This sold in 1997 for £237,000; by 2001 it had risen to £290,000. It sold again last year after refurbishment for £1,850,000, a 680 per cent increase over 18 years.
Philip Green, director of Goldschmidt & Howland also singles out a couple of developments that continue to offer resale value, despite a less desirable location and a design that is no longer in the very latest style.
He says that really excellent on site facilities and a strong sense of community can override the appeal of proximity to a tube or attractive high street for many older buyers – the downsizers who are attracted to new builds to facilitate their lifestyles as they age.
“Often in terms of what people want it’s about location. They want to be able to walk to a shop or a restaurant. Anything that’s near to a prime location. But there are particular blocks that remain popular almost in spite of their location.
“At Heathpark Gardens on Templewood Avenue the porterage in particular is amazing, they really care. You are spending substantial sums of money on service charges – it can be as much as £20,000 a year – so you do expect something for your money.
“There’s another building called Westfield in Kidderpore Avenue that’s a massive block, very popular with a lot of older people. They love the community so the resale value is massive. There’s a bridge club, a pool, gym and communal gardens.”
But what of those first time buyers being nudged towards a new build apartment, often in a large scheme in a less than prime location just in order to get a foot on the ladder. Might they find themselves the proud owner of a property with the gloss scraped off by wear and tear and minimal capital appreciation making the second rung unattainable?
Pryor for one sounds a note of caution. “Would I buy a brand new build property? No. Would I advise a client to buy one? No.
“It’s the same at the top and bottom of the market: the same principle applies whether you’re buying a Rolls Royce or a Cinquecento.
“Chinese investors buying in London famously shrink wrap the flats they buy because there’s a premium for them being able to sell on something brand new rather than slightly used, and the yields are low anyway.”
Dell also advises a careful consideration of the specific development and its surroundings when considering a new build.
“New build developments can be very high density, they can have thousands and thousands of units all in a very small space. For example the Nine Elms development in Battersea has 20,000 flats in it.
“When that all gets completed there’ll be an awful lot of stock on the market and an awful lot of rental stock available, which will depress prices and yields.”
And Green agrees that if you’re not desperate for the new build lifestyle, perhaps a smaller period property would be a better buy.
“There are bigger development schemes like one we’re involved with in Colindale, which are available under the Help to Buy scheme for first time buyers.
“There are so many of them that, whilst they’re wonderful, it’s worth asking if you would be better off buying a one-bedroom period conversion that maybe needs a bit of work somewhere more central in a building where there are only three other flats? That might well give you better appreciation with an easier resale value.”
At the same time Green points out that if you’ve stretched your budget to the limit buying something that needs a lot of work, you may not actually be able to afford to carry out those renovations. And if the choice is between renting or buying a new build, your monthly outgoings will probably be cheaper as long as interest rates remain negligible.
“Period homes do retain their value in a greater way because of the style, it seems to be eternally popular, it doesn’t go out of fashion and it’s versatile,” he continues. “In a modern property you put in a lacquer kitchen and it may be absolutely stunning but in five years time it may be really dated.”
And beyond all the facts and figures, there may be no way to go beyond that British obsession with properties with a past.
“New build homes are a commodity, priced by the square foot. Period homes are not,” says Pryor.
“Houses as homes where you have your friends over, spend time with your family, your partner, create memories aren’t commodities.”