Why the delivery of new-build homes is beneficial to property investors

By Jo Bentham18th August 2021

The number of new-build houses being delivered is at its highest in over two decades – showcasing the resilience of the housebuilding sector and its continued growth in the wake of the Coronavirus pandemic.

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In the first three months of 2021, 49,470 new homes were built – a 4% increase on the final three months of 2020 – whilst builders also began the development of a further 46,010 properties in the same period.

But as the unprecedented demand which spurred from the first Coronavirus-related lockdown continues, and the race for space sees a significant increase in the number of prospective home-movers searching for larger houses, far more are required to satisfy market demand that has been undersupplied for so long. 

According to the latest Zoopla House Price Index, the higher amount of house sales in the past 12 months has eroded supply, with the total stock of homes for sale down 26% from 2020. 

Because of this, the requirement of new-build homes able to cater to the varied needs of buyers – from those purchasing their first house through to existing homeowners looking for more space – is more apparent than ever. 

And with house price growth in the UK continuing on an upward trend, now could be a key time for experienced investors to capitalise on the booming housing market, supporting the provision of much-needed and sought-after new-build developments through the likes of property bonds

 

The popularity of new-build properties

Even before the Covid-19 pandemic brought rise to a staggering increase in prospective home-movers, the number of homes being built was not keeping pace with demand or fulfilling the existing need for suitable housing, and the need for new-build properties was evident. 

In the last 18 months, this undersupplied demand has become all the more obvious, resulting in the alternative finance provided by property bonds – which supports small and medium-sized housebuilders in delivering new-build developments – becoming more crucial than ever.

And this need – which is unlikely to diminish for the foreseeable future – paired with new-build houses continuing to be sought-after by first-time buyers and existing homeowners alike presents opportunities for experienced investors to target attractive potential returns often between 4% and 8%. In addition, it can provide confidence in the resilience of the asset after a period of uncertainty and volatility among other investment routes.

In the UK, there is a price premium attached to new-build properties, with research from Warwick Estates finding they sell for 29% more than existing homes across the nation.

Their popularity comes down to a number of factors. Some Government-backed incentives – such as the Help to Buy Equity Loan, which a record 55,000 households utilised in the 12 months leading up to March 2021 – are available exclusively to first-time buyers purchasing new-build houses. 

And as the average price for a first home in the UK in 2020 was £265,057 – up 10% on 2019 – it’s unsurprising that an increasing number of prospective buyers are taking advantage of the incentive. 

Because the initial cost of a home is increasing, first-time buyers also benefit from purchasing a new-build home that is built to a high-standard and ready to move into, instead of a renovation project that requires a surplus of capital. Combined with the ability to often purchase ‘off-plan’ and customise certain aspects during the process, it can provide a home that requires little additional expense.

In a similar vein of long-term cost-effectiveness, new-build properties are much more energy-efficient than most older properties. And the Government has now introduced plans to further improve the energy performance of new homes – as Christopher Pincher, Minister of State for Housing, states “this will help deliver greener homes and buildings, as well as reducing energy bills for hard-working families.”

 

Investing in new-build properties 

For experienced investors, as well as being an impact investment, investing into property bonds and backing the provision of new-build homes offers opportunities to get involved with the asset in a manner few other routes enable. 

Without the need for housebuilding knowledge and expertise – or the hands-on nature of other methods of investment into the asset – investors can support the build of small, exclusive developments, larger developments with numbers in the hundreds, and even mansions and luxury homes. 

What’s more, it can be possible to invest into developments in a specific geographical area – whether that’s your hometown, or an area with excellerating house prices. And as Warwick Estates revealed the new-build price premium is highest in the North East at 53%, the region could be an important consideration for investors. 

To further maximise the potential returns generated by supporting the delivery of new-build homes, property bonds can also be held in an Innovative Finance ISA (IFISA), rendering all returns tax-free.

 

The benefits of delivering of new-build homes

One thing is clear: in order to tackle the UK’s ongoing housing shortage, small and medium-sized housebuilders must continue to deliver new-build developments that are able to cater to exceptional market demand.

And in helping them to do so, experienced investors are adding property bonds to their portfolio at a time when the need for the alternative finance they provide is at an all-time high.