Buying early could beat the market

Prices for new-build homes have been hit hard, so buyers should be able to get good deals, says Stephen Pritchard
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Lisit any large city in the UK, and it would seem the country is in the grip of a new-build property boom. Housing, including high-specification new blocks and conversions of office or industrial buildings, are prominent features of inner-city regeneration schemes.

This development surge, though, masks a wider downturn in new housing starts: official statistics put the number of new houses at its lowest level since the immediate post-war period, with developers citing planning difficulties as one of the greatest obstacles. And buyers, for their part, seem to price "period" or older properties more than new build.

This could present an opportunity for the canny buyer. New-build properties are generally more expensive than their "used" equivalents, reflecting the high specification of new-build homes. But prices for new-build homes have been hit harder than those for period properties over the past year, and there are some enticing incentives on offer from developers.

"Everyone knows that new-build property is a luxury good offered at a premium," says John Wrigglesworth, who runs the Hometrack house price index. "When the market is lacklustre, buyers can see that the best deals are in the secondhand market, and they might be more willing to do a property up. New-build suffers, because it is at the top end."

In 2004, according to the Office of the Deputy Prime Minister (ODPM), the average new-build home in the UK sold for £208,000, against £177,000 for older properties. Prices for new-build properties have done less well than the wider market. Prices for new-build properties in 2004 were 11.8 per cent higher than in 2003, according to the ODPM figures. Other properties increased in value by 14.7 per cent.

Longer-term prospects for new-build properties look good. Demand for housing is still rising. Developers have also been able to secure interesting sites for new-build projects, such as regenerating city centres and riverside plots. The supply of these sites is finite, so well-located developments should outperform the wider market.

So should developments near to new infrastructure, especially public transport. Proximity to public transport, especially rail links, was identified as a key factor for buyers in recent research carried out for the Housebuilders' Federation.

Research for the Federation, by Anglia Polytechnic University's housing unit, predicts that the number of households wanting smaller homes will grow strongly between now and 2021. But the research also predicts strong demand for larger houses among older owner-occupiers, with some of the need for smaller properties satisfied by the private rented sector.

Both scenarios play to the strengths of new-build property. New flats appeal to buy-to-let investors, and buyers looking for a larger property seem increasingly willing to consider a new-build home.

For buyers, this suggests a new-build home should perform at least as well as a period property over the medium term. It could even do better. Wrigglesworth points out that just as new-build prices have fallen the furthest recently, they also have the potential to recover more strongly. "Just as prices fell by more in the downturn, they could overshoot the rest of the market in the upturn," he says. As a result, there is a window of opportunity for buyers to strike a deal on a new-build property.

Professional developers and large house builders may be more open to negotiation than private sellers who are emotionally attached to their homes, or who need to obtain a high price to fund a move.

A tried and tested way of obtaining a good price is to buy at the earliest stage of a development, if not off plan: developers will give strong incentives to sell the first few units on a site. But for buyers who want to move soon, waiting for the house to be built might not be the best option. In that case, look for developments that are close to fully sold. Developers will be open to offers to sell the last remaining homes, so they can close the site and move on.

As long as there's a buyer's market, anyone looking at a new home is in a strong negotiating position.