Monday, 17 September 2012

PROPERTY ARTICLE: New build versus second hand. Copyright SvD.

New build versus second hand

The London property market is defined as new build or second hand and in 2011, buyers of new build property were predominantly international. In 2009, the trend was reversed and the majority of buyers of new build were actually British.

There are some interesting assumptions to make in light of these statistics. One is that the developers promote their projects aggressively in the international market to attract buyers, and two, by selling off plan, developers effectively fund their projects this way. Chinese and other Far Eastern buyers have been very active in buying new build property in London in 2011. The Chinese economy is continuing to experience strong growth (10.3% in 2010 and 9.5% in 2011) resulting in a surplus of cash for buyers to invest in London. The figures speak for themselves: buyers in the east of the City of London, particularly Docklands, are dominated by the Chinese and two thirds of new build was purchased by international buyers in 2011.

I should also point out that the property market in Beijing is considered to be overheating and prices are rising out of control – there is much speculation that the bubble is about to burst (sound familiar?) and that property inflation in Beijing will overheat. Investment in property constitutes some 13% of economic output in China so there is genuine cause for concern of the effect on the economy should the property market collapse. We do not have to go too far to understand that the knock down effects of a property collapse can lead to restricted lending, job losses, stagnant economic growth and a recession. Therefore there may well be some urgency amongst Chinese buyers to invest their money quickly before times change for the worse. And as always, London is seen as a saf(er) haven that other parts of the world given its stable political and economic climate. And property prices in London have held their own, even showing increases in spite of the recession and worldwide economic crisis.

Why is new build so popular with overseas buyers?

New build tends to be in the outskirts of the City and is significantly more affordable than Prime Central London property. New build also tends to be in areas which attract professionals and City workers and so represent good rental investment opportunity- these properties will pay for themselves as buy-to-let and in principle, should increase in value over time. Many new builds are in up-and-coming areas that will become more appealing and popular over time (and as a result their value will also appreciate).

It should be added that new build is very popular with Far Eastern buyers because it is very similar to how they invest in their own markets where new developments dominate rather than second hand.

Developers remain very focussed on building projects, particularly high rise apartment blocks to the east of the City and which benefit from easy transport links into Canary Wharf and the Square Mile. I recently placed a Qatari national in a serviced apartment block in Canary Wharf for one month (while she was attending a course in the City). She frequently jumped on the tube to go to Mayfair and Knightsbridge to meet friends for dinner or do a spot of shopping. For her it was quite a quick and easy journey to do after a day at the office.

So do look ‘east’ if you’re thinking of buying a good rental investment or a home away from home.

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