Medway Investors Pay A 27% Premium For New Build Properties. Is It Worth It?

Hello Medway Property Readers,

With the recent announcement of the commencement of building works on the primary school at Rochester Riverside I have been taking some time to look into the premium often placed on new builds and whether they are wholly worth it when it comes to investing in property.

As more people choose to move out of London, Medway has its fair share of new housing developments. For example, Rochester Riverside (mentioned above), Mountbatten House, Sunningdale House, undoubtedly UCA Campus and more are just a few we have seen locally.

So, when it comes to a new build property what are the pros and cons and are new build properties a good investment?

Initially, my answer here is yes, they can make a good investment. However, it does depend on your strategy. For example, it is a widely accepted fact that a new build property will generally cost more and have a lower rental yield than an older property.

In addition, a new build will have a number of benefits that investors may want to consider.

Let’s look at this below.

Rental Rates

If we look at a two-bedroom apartment situated in the Rochester Riverside development, you will generally be paying around £310k, whereas the comparative price for a similar standard two-bedroom apartment in central Rochester is around £200k (35% lower).

Looking at rental rates, it is quite tricky to find properties available to let, however, there is one two-bedroom new build at Rochester Riverside I have found that is advertised at £1,400 per month. Compared to an older property, rents tend to average at around £950 per month. This would give your new build a yield of 5.4% compared to a yield of 5.7%.

Whilst I get that this illustration is not an absolutely huge difference, it is important to consider the additional capital required. For example, you would require an additional £22k plus stamp duty (£6,300 before 31st September and £7,300 after 1st October). This is a significant amount of additional capital which could easily be put into another investment to generate an even better return.

When it comes to houses, I have made contact with some local agents to ask about available new builds, however, I have been unable to find any comparative prices and as prices have increased significantly over the past year, I have not been able to do a fair comparison of rental rates and yields.

Benefits To A New Build

Ok, so there are some benefits to buying a new build property. In addition to generally getting a higher spec, new build properties tend to come with:

  • A 10 Year warranty
  • A better EPC rating
  • No chain
  • The option to buy direct from developers

New builds do tend to have a reputation for snagging issues however and I know that often the prices can be inflated, with the best plots in larger developments often offered to overseas investors first.

Are New Builds Worth It?

This is the million-dollar question and for me personally, I do not think that new build properties are as good an investment as an older property or an HMO. It is, however, completely dependent on your goals and financial situation.

Generally, new builds are in key locations, require less maintenance, and are quite easy to let, however, given the price premium they should always be considered a long-term investment.

The final point is how, for investors looking to buy low and increase value through developing or converting to an HMO, new builds are not a good investment.

I hope you found this article helpful. If you are looking at expanding your property portfolio, I regularly work with investors to source properties and would be more than happy to book an initial consultation to discuss further. Just reach out to me through LinkedIn and I will be more than happy to book a slot in.

Hasan

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