I'd usually tell landlords & especially newbie landlords to avoid the perils to be caught by the allure of off-plan marketers selling sexy new city centre properties.
However, there are circumstances when new residential properties sometimes represent ideal investments property snagging companies in dubai. They've certain obvious advantages to a landlord in that once the 'snagging' issues are sorted out a brand new build property investment should get ready to rent out immediately without the frustrating renovation work or voids period.
There is without doubt, with the increase of interest rates and now the credit crunch the residential property market is slowing, particularly away from south-east and London. The latest figures from the Financial Times show that prices actually fell in most elements of the united states between June and September; the exceptions being London and the South where prices have continued to increase but at a slowing rate. The biggest falls were experienced in the North & East Midlands with the latter registering a 2.5% fall in this 3 month period.
Among the biggest losers in a slowing market are the house builders. One only has to witness the way share valuations of the major UK builders have fallen off a cliff in recent months. At the time of writing shares in Barratt Developments one of the UK's leading house builders are down over 50% from their year high of almost £13 and are now actually hovering at just over £5. The marketplace obviously expects an extreme slowdown.
This slump in activity may actually represent a buying opportunity, particularly for sharp-eyed landlords. House builders become desperate to shift units once the housing market slows. This is because the developers have to support their large overheads from dwindling sales revenue. The longer a development goes unsold the more their costs rise even if the development has been completed as the house builder continues to shell out money to pay interest on the loans and marketing costs. This all means profit margins are continuously eroded the longer the development remains unsold. Developers are particularly susceptible to a decrease when they're building apartment developments. This is because they need to finish the complete development and cannot phase construction and thereby match sales to production.
A Landlord's Opportunity
A down turn in the residential market could therefore represent a genuine buying opportunity for landlords that are prepared to negotiate hard with housing developers for a deal. A developer is particularly receptive to a landlord's advances where they only have a few units remaining inside a development and need to market so that they'll move off site to the next development. Landlord's who have the ability to affect multiple purchases either on their own or club together and then behave as a syndicate come in particularly strong positions. If this all sound such as the investment clubs of old then it is. The difference is that by carrying it out themselves a landlord isn't paying vulture introducer fees and charges and also that the landlord can ensure that they're acquiring the properties at an authentic discount to industry price.
Small builders particularly vulnerable
In addition to the more expensive house builders, landlords should be familiar with the numerous small local builders which have often chanced their arm and experienced property developing without having to be fully alert to the economics. These developers often do not need the financial back around survive a down turn. Therefore, if the property remains unsold for more than a couple of weeks, these developers are under serious financial pressure. This means that a landlord is in an excellent position to make a seriously below market value offer. My physiotherapist was only remarking yesterday, as he was pummelling a vintage sports injury of mine, how he managed to get a brand new build really cheaply just because the builder had over extended themselves and was desperate to sell.
New Builds & Buy-to-let Finance
One potential stumbling point for a landlord trying to get a brand new build residential investment bargain is to be able to secure a buy-to-let mortgage on these properties. Some buy-to-let lenders have now been spooked throughout the last year by the over supply and over valuation of some new build developments and have therefore began to use a really cautious lending policy in respect of these buy-to-let investment properties.
Large builders or developers often offer incentives including a 'cash-back' or the payment of a deposit to encourage the purchase of new builds. Problems can occur with builder's deposits since the discount set pertains to the builder's valuation of the property, not an unbiased surveyor's valuation. Most mortgage lenders will offer the funding centered on either the purchase price or valuation, whichever may be the lowest. A few lenders encourage a builder's deposit but it is important to reiterate that the valuation set by the builder must match with that set by the independent valuer.
Those few mortgage lenders, who do accept builder's deposits, will only accept deposits as high as 5% of the property valuation and / or insist that the borrower puts down a 15% deposit themselves. Therefore the thought of purchasing property with no money down has been redundant for sometime.
Issues concerning new build valuation have lead lenders to scrutinise very closely the survey process and in some instances to check on their exposure to lending specifically regions of the country. Some lenders will also be asking borrowers to pay larger deposits particularly on flats of between 25% and 30%, against a market norm of 15%.
My advice for landlords on the coming months is to watch their local housing market very carefully for newly completed properties which are sticking. In this case landlords shouldn't feel shy about making seriously below market value offers. Where they have their finance in position landlords that are pleasantly surprised once the developer decides to "bite their hand off" ;.