I was posed this question this morning by someone considering investing in the London property sector.Yes, I do believe there is value in the London New Build market.
Below we will discuss just where that value is and how you can find it.
Let us begin by clearing up value, VALUE is relative. What I see as value and what you see as value, is likely two different things. When we talk of value I will keep it to a general view that, first, value in terms of a property means that compared to similar properties it is priced in line or better than its competition. Second, the rental income is proportionate to the price paid for the property.
So where do we find value?
FIND THE ANOMALY.
We seek to find those properties that are priced better than the competition, the units in a building that when you look at them just make sense, this means scanning through loads of prices and price lists finding the units that upon brief scrutiny look good enough to further asses. We then will look and see why this unit is better priced. Does it have terrible views, is it situated over the refuse collection point, or perhaps it seems like it won't have any views at all over adjacent buildings or trees etc.
LOOK AT THE DETAILS.
Knowing a project or an area comes into play here, a good agent can supplement your own knowledge by pointing out that even though it looks like that you might not have views, that is due to the buildings much higher ground level and higher ceilings on lower floors, that this unit will look over the adjacent building. (This local and detailed knowledge has on several occasions pleased many of my buyers and investors)
Sometimes a unit will just be bad or less desired that the floor above with the same layout. But then we look at the second part of our value concept which is proportionate rent. Here is where things get interesting and sometimes buyers get surprised when the lettings agents share the information with them. Let me explain this with an example I came across a couple years ago which highlighted this perfectly.
An apartment on the second floor was "discounted" by the developer as it was looking straight at the back of the second phase of the development, therefore being darker and with no views. The "discount" on this unit was 12% compared to a similar apartment right above it which was looking out over the adjacent building with clear views.
The rent on this unit was only 2% less than the unit above, effectively providing a significantly higher yield (rental income to cost of property) as the tenants were and often are, far less concerned with the views and more concerned about what the apartment offered inside, for prospective tenants, all they saw was that this apartment was 2% cheaper to rent, and as expected upon the start of viewings, the cheaper apartment rented faster.
The buyer of this unit has been very happy with his purchase and he gained value from considering the project in detail and speaking to the right people involved.
Now we have given a base for looking at the property compared to its immediate competition, but let's look further. Looking at competing properties, how does your unit compare? There is no point comparing a flat in Clapham with a flat in Mayfair and saying that the flat in Mayfair is too expensive, or looking at the flat in Clapham going oh it's a bargain! This comes across as obvious to many, but this is just an exaggeration of what needs to be done.
COMPARE LIKE FOR LIKE.
Tools like Rightmove and Zoopla allow us to much faster do a quick analysis of competition. This is great, you can select the appropriate area you are looking at, narrow down the property features as close to the one you are considering, and within a few minutes get a very good idea what the competition is and how good or bad an option you have in front of you. Next, you take the 3 or so closest competing properties and see why they are cheaper or more expensive that the one you are looking at. Is yours looking even better now, great you have found VALUE. Is it perhaps looking like a bit less of a deal? Negotiate. Not all sellers will be open to it, but most will be and if you are not happy spending X on that property, you believe value is X - £15K, show the seller why you think so, make your offer and work on it from there. The closer you get to your goal the better. And if you don't, know where your walk away point is.
Once you know what value for you means in a particular situation, you won’t be happy not getting close to it, and when you do get it, its excellent. Then you can work on optimising yields. (Which I have previously discussed and have linked here)
What are your key elements when seeking value, what areas do you believe still have the best value across London?
Do you wish to discuss something you are looking at and just want some more insight? Reach out, we are happy to help buyers and sellers alike.