There are a number of advantages to buying new builds and off-plan properties in various areas of London. They can offer a substantial return on your investment, not just from the yield but also from capital appreciation in the long term. However, the process of purchasing a property on a new development differs from standard property investment, and it is important to understand these key differences.
If you’re considering investing in a new property development in London, our guide outlines all you need to know.
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The Process Of Buying A Property in a New Development
- Reserving The Property
- In most cases, you will need to reserve a property once you have decided which one you are interested in. To reserve it, you must first complete a reservation form which details not only the agreed price for the property but also the deadline by which all contracts must be exchanged. Reservations usually incur a fee which, once you have paid, guarantees that the property will be removed from the market. However, exclusive rights to the property are not unlimited and are usually time-sensitive. If you do not exchange contracts by the deadline agreed, the property is likely to go back on the market, and you may also lose your deposit.
- Know Your Rights
- You should receive a copy of the Consumer Code for Builders which outlines the mandatory requirements that all property developers must adhere to. This details the standards required for marketing, advertising and after-sales support and also the terms related to your deposit.
- Conveyancing
- Your solicitor will carry out all necessary searches and raise any enquiries. They will also arrange a date for any required surveys or valuations and gather the documents required for the contract and mortgage offer [if you are funding the purchase with a mortgage].
- Exchange Of Contracts And Completion
- Much like a conventional property purchase, the process of buying in a new development concludes with an exchange of contracts and completion. The deposit is paid when the contracts are exchanged. During the period between exchange and completion, you will need to make sure the mortgage funds are available to your solicitor for the final sale, which is the purchase price minus any deposits or reservation fees.
Off-Plan Or New Build?
There are two main ways to invest in a new development in London – as a new build or off-plan. Both offer distinct advantages. Here is a low-down on each option.
Buying Off-Plan
Purchasing off-plan means you are selecting a property based on the plans and specifications before it’s even been built. After finding a reputable developer and choosing the property, you will then be asked to pay a reservation fee, which forms part of the deposit [usually between 10% and 30%]. A further deposit is usually required after the exchange of contracts.
Construction work generally begins after the contracts are exchanged. Then, after the building work is complete, the legal completion of the sale takes place. The exact length of the process varies considerably, and if you’re investing within a deadline, it is important to find out when you can expect the construction to be completed. A good developer should be able to give you an approximate idea; however, you should be prepared for delays.
Why Should You Buy Off-Plan?
Buying a property off-plan is a great way to save money, as you’ll often be given a significant discount on the market price. If the area you are investing in continues to perform well, you will also benefit from additional capital growth before completion.
You may also be able to personalise your development and choose fittings such as flooring, wall colour, lighting, and appliances. This level of customisation allows you to tailor the property to suit your preferences and potential tenants' needs.
Bear in mind, however, that you will not be able to view the property before committing to the purchase. As a result, it’s imperative to examine the property specifications thoroughly, so you know what the completed build will look like. Also, be aware that some mortgage lenders may only keep their offers open for six months, and if the construction takes longer than anticipated, this could cause problems in financing your property purchase. Some mortgage lenders will offer greater flexibility, so make sure you check the terms before committing.
Before purchasing an off-plan property, do some research. Find out how reputable the developer is and view other developments they have worked on. If possible, talk to investors who have purchased from the developers in the past to find out how reliable they are and the level of results they deliver.
The Positives Of Buying A New Build
Buying a new build as an investment means you can see the finished property, inspect it for any problems, and have a professional survey carried out. As the building work will already be complete, you should not have any problems with obtaining a mortgage, but you may not save as much money on your purchase (when compared with an off-plan property investment).
Of course, it is still important to check out the developer's credentials before you commit to buying. Many people choose to purchase new-build developments as they are seen as a lower-risk alternative to buying off-plan.
Adding Value
If you are considering selling the property within a few years, a new build may not be the right choice for you as it may take longer to increase in value. Off-plan properties are often cheaper, which means they are well suited to shorter-term investments.
However, there are other ways you can add value to your new development property. Before committing, find out what scope there is for extension (for example, an attic conversion or conservatory) and whether the property is suitable as a buy-to-let venture which provides an extra revenue stream.
As with all property purchases, there is always room to negotiate. This is a quick, easy way to boost your investment returns.
Protecting Your Investment
Investing in a property in a new development is a serious financial commitment, and it is important to protect your money. Ask the developer what warranties are in place to cover the structural work, and make sure these warranties are offered by a reputable organisation such as the NHBC. Make sure that the warranty features a ‘snagging’ provision, which means the developer is responsible for fixing minor issues for a specified period of time post completion. If the developer fails to carry out the work, the supplier of the warranty should be willing to intervene on your behalf.
For more information about off-plan and new build property in London, contact our specialist team in our central London offices.