Can an investor make a good return from this Spennymoor new build home?

I've been keeping an eye in the Spennymoor housing market this week and this property started me thinking.

Whitworth Road, Spennymoor, DL16 7QF

http://www.rightmove.co.uk/new-homes-for-sale/property-55510805.html

And what it got me thinking was can a new build be an investable property? The reason I ask this is because there's often a premium to be paid for new build. The developers have prices higher than a resale property but offer incentives such as legal fees paid, stamp duty paid, white goods and carpets. So for the investor, a new build property is usually avoided.

This property is on Whitworth Road and has an asking price of £169,995, which is a lot of money for a 3 bedroom property in Spennymoor. The selling agent describes it as-

A flexible THREE BEDROOM DETACHED HOME featuring a beautiful OPEN-PLAN KITCHEN and DINING AREA with a GLAZED BAY leading to the REAR GARDEN.

With a new build there's a guarantee and the place should be totally ready to move in to for your tenants. The photographs look great, but the show homes always do.

In terms of rental potential, tenants will probably be queued up for the prospect of renting this property, as long as the price is right. I think that this property would command a monthly rental figure of between £475 and £575 per month. Based in the asking price, this equates to a gross rental return of between 3.3% and 4%. It's an okay return but may not be what the seasoned investor is looking for.

Can a new build provide a good rental return? Maybe, but probably this one will go to a owner occupier.

Why new build properties are distorting the Spennymoor property market

There are still 41 new build properties showing on Rightmove for the Spennymoor area.

From this at £441,500

Whitworth Road, Spennymoor, DL16 7LN

http://www.rightmove.co.uk/new-homes-for-sale/property-24192879.html

To this at £89,995

Coulson Street, Spennymoor, DL16

http://www.rightmove.co.uk/new-homes-for-sale/property-29549649.html

Now the impact that new builds have had on the Spennymoor property market has been large. It comes in more than one form, but let's take a quick look at where things have been impacted-

Mortgage demand

The government has put in incentives in the past that have incentivised the buying of new build homes. Nationally, this makes sense, as the country isn't producing enough new homes to satisfy demand and keep house prices on an even keel. But the majority if new homes are needed in and around London, where demand and house prices have soared.

The incentives have included low deposits for buying new homes (one if the earlier incarnations if Help To Buy) and this has made new build properties easier to buy than pre-owned properties in Spennymoor. Add to this the incentives that the builders offer and part-exchange then the desirability if a new home goes through the roof, financially.

Part-exchange

This is a marketing tool used by the builders to ensure that they can shift their properties quickly, and not be involved in lengthy chains. The downside it has had on the Spennymoor property market has come when the part-exchanged property is then sold in. The builder doesn't want to hang into this asset for long, so sells it at a price lower than market value. This makes other nearby properties look poorer value and subdues the asking prices. Add to this the valuation a surveyor puts on a property for mortgage purposes, and they take recently sold properties as a comparable and a benchmark, then even properties with an agreed sale may fall foul of the mortgage lender when they disagree in a true valuation.

Loved and lived in

One if the advantages the new property builders have, and use, is the show home. They are able to produce a property that looks fantastic and appeals to buyers by spending a bit of money on it and by having the show home kitted out with all the 'optional extras.' Someone living in their own home doesn't have the luxury of doing this. They have to live there every day and this creates dirt, objects and time-constraints that the show home doesn't have to deal with. Immediately, every pre-owned home in Spennymoor looks in some way inferior to these carefully stage-managed versions of the truth, and selling a pre-owned home becomes more difficult.

Now, you may say that these above would be the case anywhere, but I disagree. The fact that Spennymoor has had SO many new build sites in a short period of time, plus the fact that the high demand for property probably lies elsewhere means that the effect will be amplified here.