With the current buoyancy in the housing market, you would be forgiven for thinking that you are guaranteed to make a good return on a new build property in a favourable location. But, you wouldn’t necessarily be right.
New build properties certainly do offer a number of advantages, including the fact that there is no chain, they are more energy efficient, they come with a new home warranty and there are plenty of government schemes to help you save for them.
However, much like a new car, there is the very real prospect that any new build home will lose value the moment it is no longer considered ‘brand new’.
So, do new builds lose value? In this guide, we’ll outline whether new build properties really do lose value or whether they can be a good investment.
Generally, new builds are initially sold at a premium. This is because, as the buyer of a new build property, you will be the first person to live there. You’ll benefit from a building that has been constructed to the latest building and energy efficiency standards which means you should pay less in upkeep and bills in the following years of living there.
Unfortunately, however, when you move into your new build home, the property will suddenly lose its ‘new build’ status. Therefore, when it comes to selling your house, you won’t be able to sell it at the new build premium price.
And, if you sell your property within a few years of purchasing it, it is likely that the ‘second hand’ house prices in your area won’t have increased enough to get your money back, let alone make any extra.
However, if you’re planning on living in your new build home for a number of years, it’s likely that you won’t notice this small drop in value. Like all financial investments, the value of a property can go up or down, but if you take a long-term approach you can usually time it right and avoid any significant losses.
The best way to avoid your new build property losing value is to do your research. Look into what sort of price similar older homes in the area are selling for, how much more expensive a new build is and how house prices, in general, have grown in the area over the past few years.
Luckily, though, housing trends like this might not have that much impact if you are taking a longer-term view. For example, new build properties have the benefit of being more energy efficient, making them cheaper to run and more environmentally friendly.
So, ultimately, the question of do new builds lose value isn’t as straightforward as it might first seem.
There are a number of reasons why new builds lose value. These include:
So, if you’re wondering, ‘Do new builds lose value?’, the answer is yes, and these are all the possible reasons why.
One of the best ways to avoid your new home losing value is to ask as many questions about a new build house as possible before purchasing.
New build houses have been known to lose value by over 7%. However, the extent of the loss in value does not represent the entire picture.
As well as the loss in value, you need to take into account that you may have lost out on a price increase if you had purchased an old home.
Find out the pros and cons of purchasing a new build vs an old house.
On average, new builds sell for 10% more than the typical home. However, the new build resale value tends to be significantly lower.
Yet, once again, there are a number of factors that will influence the price of your new build home when you come to resell it. For example, should you wish to sell before the development is sold out, your ‘second hand’ home will be in direct competition with the remaining brand new homes available.
Therefore, it is best to see moving into a new build property as a long-term plan rather than a short-term investment.
Before committing to a new build home, make sure you check out the hidden costs of buying a new build.
Given that new build house prices tend to be higher compared to older homes, you might want to negotiate with the developers to see if you can get a better deal.
It is best to negotiate the price of a new build house at the very start of the development when it is still off-plan. However, you can get lucky and negotiate good deals at the end of the build project too.
If you arrive late in the development, when there are only one or two properties left, the developer is often keen to move these on at a good price so they can move onto their next project.
In order to negotiate the price of a new build property and avoid it losing value, you must arrive with substantial knowledge of the area and with the value of similar second-hand properties.
Many people like the idea of buying a new build house given that they will be the first ones to live there. However, is a new build really worth buying if it’s going to depreciate in value?
The answer to this question is largely determined by weighing up the pros and cons of new builds. If for you, the pros outweigh the cons, then it is probably worth purchasing a new build despite it probably losing value. However, if you think there are more pros than cons to purchasing a new build property, then you are probably better off opting for an older home.
Another factor that will influence whether it’s worth purchasing a new build is how long you plan on living there before selling it.
If you expect to live in your new build home for at least 5 years after purchasing it, then you are unlikely to lose too much when you come to selling. Yet, if you think you will only stay in the property for a year or so, you would probably be better off choosing a ‘second hand’ home instead.
If you’re 100% set on purchasing a new build property despite it likely decreasing in value, then you will want to do everything you can to minimise this loss. Thankfully, there are a number of things you can do to prevent a new build house from losing value.
The best way to minimise the amount of value lost on your new build property, is to assess the local housing market and determine what similar houses are worth nearby. Use this knowledge to negotiate the initial purchase price with the developer to one that is similar to older houses in the same area.
Another way to get a good deal on your new build house is to research the developer themselves. Have there been any significant issues with other properties the developer has built? If so, it is likely that the new build property will lose value by the time you come to selling it as a result of poor building.
As well as the developers, you should try to research the property management company. Most new build properties have a property management company in place to maintain communal areas and outside spaces. It is a good idea to seek feedback on them and look into the fees they charge. Are they reliable? Are they offering value for money?
Every new build home should come with a valid 10-year new home (NHBC) warranty or 6-year architect’s certificate. This acts as an insurance policy to protect new build home buyers from the cost of any structural defects. The costs of rectifying any defects within this timeframe is down the developer and so shouldn’t come out of your pocket.
A snagging inspection is specifically designed to new build properties and highlights any issues of work that hasn’t been completed to the expected standard and/or any issues that are not compliant with relevant building regulations. The developer must resolve any identified issues before you are due to move in.
It is very important to find out if any subsequent developments are planned for the surrounding land. You should be clear on how big the new build development is going to be and whether it represents phase 1 of a much larger building plan. If further development is planned for the surrounding area, whether it’s more housing, a motorway or a busy trainline, your new build property is highly likely to lose value.
Location is almost as important as the house itself. If you choose an area which has long-standing assets, such as good schools and local amenities, there is always going to be demand for properties in the area, and your new build property will likely retain its value well.
So, if you’re thinking about purchasing a new build property, make sure you take into account the possible issues you could come across.
Although new build houses can lose value, there are things you can do to prevent this and ways to ensure you don’t lose a significant amount of money.
Find out more first time buyers guides here.
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