While buying off-plan property is still a hugely popular investment strategy for those looking to maximise their returns, the property type is also appealing to more first-time buyers.
In 2022, 67% of off-plan property purchases were made by first-time buyers, pushed up by a lack of second-hand homes available on the market. For many, buying property in this way can save a sometimes significant sum on the purchase price compared with a completed new-build.
A recent report from Hamptons looking at who is buying homes before they are built and what type of homes they are buying also found an increase in popularity of small houses, which have for the first time overtaken flats as the most popular off-plan property type.
This could be a reflection of the fact that first-time buyers may want a larger home outside a city, compared with an investor who may be more inclined to purchase a high-yielding flat in an area with high tenant demand. While the share of new flats sold in advance in 2022 was 44%, the figure was 46% for terraced houses.
For semi-detached and detached homes, the proportion was much lower, according to Hamptons, at 32% and 23% respectively. For both these property types, the proportion being sold off-plan has decreased compared with 2016’s figures.
Off-plan still booming in the north
Hamptons’ research found that off-plan property sales were still particularly high in the top-yielding parts of the UK, where a large portion of the developments are aimed at – or cater exclusively to – property investors.
For example, in locations where the average buy-to-let yield was more than 8%, the number of new off-plan sales increased year-on-year. Meanwhile, around half of new homes sold before construction was completed were in locations where average yields were more than 10%.
Across the board, the highest-yielding place for buy-to-let investment is the north of England. This has led to a surge in the number of landlords choosing to invest there over recent years, with the likes of Manchester, Liverpool, Leeds, Sheffield, and some of the more peripheral towns proving particularly popular.
Yields over price rises
Particularly as interest rates have been rising and house prices beginning to stagnate, many investors have been placing a particular focus on the rental yields they can achieve from their assets. According to Hamptons, this means flats outside London are more likely (44%) to be sold off-plan than those in London (43%).
The report adds: “London offers investors the lowest average yields in England and Wales, so off-plan demand there is driven more by owner-occupiers than anywhere else in the country. However, off-plan sales have also held up more strongly in higher-yielding parts of the South.
“Slower price growth has also reduced the incentive for some buyers to get in quite so early. A decade ago, investors saw the value of their new home rise 20-40% between the time they agreed to buy and completion. But as price growth has slowed, all types of buyers have become less willing to commit to buying properties so far in advance.”
Hamptons lead analyst David Fell said: “Smaller new houses are now more likely to be sold off-plan than flats. This reflects Covid-induced changes alongside a shift in who is willing to buy before a new home is completed.
“Off-plan demand has steadily moved away from investors buying two or three years in advance towards first-time buyers who are typically looking to move home within 6 to 12 months. The majority, however, still want to wait to see a finished product.”
BuyAssociation is a property investment consultancy that specialises in off-plan, new-build investments across some of the most promising and high-yielding locations in the UK. Get in touch to find out more.