Buying a new build flat can be very appealing but like many new things they lose value as soon as they become 'used'. Can they still be a good investment?
I really like the Canada Fields Development in Broxbourne, EN10. I’ve let two flats there recently and have another underway. It’s quite a sprawling estate but it has a nice feel to it - family oriented with a good mix of owner occupiers and private and social tenants, it’s very green and close to the Brookfield Shopping Centre, Broxbourne and Cheshunt Train Stations, and just a ten minute drive from Enfield and the M25.
The development was built in 2005 and at that time you could pick up a one bedroom flat for as little as £150,000 and a two bed for as little as £165,000. Roll forward ten years and there’s little change in prices.
Every week I look at the latest ‘Flips’ – where the seller has realised a healthy increase in property value, and ‘Flops’ – where the property value has increased very little or even decreased.
This week I couldn’t help but notice that seven of the top eight flops in EN10 were on Canada Fields.
It’s not that surprising really – In 2005 you buy a new build at a typically inflated premium price and two years later the property market starts to crash.
In 2010 when the market started to recover properties on this estate, which were now looking slightly less sparkly and could unkindly be described as ‘used’ or ‘second hand’, were selling for as much as £35,000 less than they were originally bought for - painful!
This weeks 'flops' show increases in value of between 1.79% and -0.29% since their original purchase ten years ago. If your glass is half full you could say this is good news as in five years these home owners have gone from negative equity to positive capital growth (albeit very small).
If you’re buying a new build be prepared to lose money straight away, in the same way that you do when you drive a new car off the garage forecourt. If you’re going to be living there for a long time then it doesn’t matter so much but with investment properties you should ideally be aiming to make money from day one not to lose it!
However, capital growth is a bonus with an investment property and the important thing to look at is the yield that the property generates.
Taking the top ‘flop’ as an example, a two bedroom flat in Ottawa Court was bought for £178,000 in April 2015. From the marketing photos it looks to be in good condition and could be let with minimal work (if any). Similar flats have recently been advertised for an average £950pcm, which would achieve a gross yield of 6.4%.
If the person who bought the flat in 2005 had lived in it for ten years enjoying it's newness and then rented it out rather than selling it, then instead of making a £5,000 loss (plus all the costs associated with the sale) they could still be achieving a gross yield of 6.2% and could benefitting further from the 5.7% per annum growth that Zoopla estimates the property is currently achieving.
I have bought a new build before but only to live in, from an investment point of view I prefer ‘second hand’, so I would be more likely to buy in to Canada Fields now than 10 years ago.
At Belvoir Lettings Enfield we don’t sell property, we simply use our experience to advise people as to what might make a good buy to let property investment in the Enfield, Haringey and Barnet areas, and how to successfully let their property.