There are always different advantages and challenges involved when considering any property for a home or investment. One of the primary elements that arises, particularly when searching in such a densely populated built environment like London, is the choice between purchasing a period property or a new build development. With such a rapidly evolving market in the capital, it has become impossible to ignore the attraction of new builds when there are so many development restrictions and renovation drawbacks associated with the centuries-old architecture of key locations and neighbourhoods.
However, there are still plenty of issues to navigate. Familiarising oneself with these and gaining a fundamental understanding of their impact is a great way to enter any discussions with the property teams or professionals that will be assisting you.
This point guide walks through a collection of the main issues to bear in mind on a new build journey.
Do Your Developer Homework
The reputation of the developer responsible for the new build properties you are considering must be researched. Any available information on disputes, late completions or planning controversies should be investigated thoroughly to make an informed call on their suitability. If possible, try to arrange conversations with owners in previous developments and not just their sales team. The most impressive and efficient developers will always welcome scrutiny from buyers and accommodate any such requests.
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Clarity of Contracts
Inevitably, the hard yards of any contracts will involve a legal undertaking and representation on your part, but it pays to be aware of certain guardrails from the beginning. Issues such as fully itemised specification documents and listings must include every fixture, fitting and finish that was part of the sales pitch. Imposing a Long-Stop Completion Date should also be considered. This is a strict deadline at which point you can claim compensation or even withdraw from the sale.
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Schedule Risk
There will undoubtedly always be certain delays, setbacks and unavoidable scheduling changes when a new build development is at play. It is incredibly important to mitigate any risk that you personally have that may run alongside the movement of key dates. This is critical if you are structuring the financing for the purchase through a mortgage with finite time periods associated with the offer. You will need contractual rights and confidence that you will not become exposed or financially impacted by any failure of the build.
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Intelligent Finance
Modelling the way that you would like to pay for the property must be a high priority on your task list. Occasionally, lenders do exercise caution with new build developments and that can impact overall numbers. Developers are also known to offer many incentives, such as stamp duty payment and service charge reductions over an initial period, but this can sometimes reduce the overall loan amount if these incentives exceed around 5% of the property value. Always stay aware of the real applicable value of any incentive.
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Scrutinise Management Structure
Lease terms and service charge mechanisms require the closest attention possible. Headline-grabbing modest ground rent numbers can sometimes obscure a more complex payment structure. Occasionally, freehold properties do have ongoing estate charges for any landscaping, roads or additional amenities that remain privately owned. A key factor in this is to establish whether local authorities will be adopting roads and drainage systems or if they will remain in perpetual private management. Clarify all fees, how they are set and who is responsible for them.
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Professional Snagging
Snagging is an essential component of successful new build developments. Allowing the developer to exclusively conduct their own checks is a risk that may leave certain functional and cosmetic defects obscured until after the property is occupied. Commissioning an independent surveyor to inspect everything from water pressure to window alignment and subsequently produce a snagging schedule will keep any developer sharp. An appropriate and acceptable timetable for remedial work can then be agreed upon by all parties.
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Insurance & Protection
Any warranty provided will usually offer a standard ten-year structural guarantee through an external body. It is always advised that a Developer Insolvency Protection is evident in these guarantees too, to hold the builder accountable up to completion. It also makes sense to ensure that any insurance can be secured from the moment of exchange, regardless of whether the address is yet listed in the insurer’s database. Any gaps in cover should be avoided at all costs.
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Benchmark the Basics
There is a temptation to suggest that new build properties hold a premium over existing similar homes, which is often put down to the convenience and brand new status. Modelling this with price-per-square-foot comparisons on both sale and rent scenarios is a good way to stress-test the assumption. A resale scenario when the new sheen has faded is also a good way to benchmark true value and can form an important part of initial sales negotiations.
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Good Governance
It is often suggested that the most effective way of treating any property purchase is akin to a managed project. Therefore, if the strains and demands on your time and input would be too much, an independent team or individual must be appointed to be your representative and point of contact. They can then report back to you periodically and escalate any issues that need your attention to avoid costly surprises or delays.
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The Exit Issue
As tempting as it may be to view a new build property as a forever home or generational investment, any exit has to be considered at the beginning. Reviewing any restrictions that may be imposed on alterations, extensions, developments and subletting is best practice at the outset. On some occasions, with new build developments, the developer or management company does factor in a right of first refusal for resale and this is a huge potential pitfall that must be uncovered before any sale negotiations gain traction.
Cool heads are equally as important as open minds when looking at a new build property purchase. The due diligence and business acumen that drive so many acquisitions external to the property market can offer some valuable guidelines to follow that enhance the chances of success. Working in such a manner can go a long way to making your property purchase as strong as the bricks and mortar that hold it together.
