New build versus existing property: an investment framework

New and existing homes are often sold as a taste: new means modern, existing means character. For a holding, they are different contracts. One is a promise that a building will be finished and then run. The other is a building that has already been finished, occupied and repaired. The framework below is a way to read either file. It is not a preference for one of them.

What is being bought, and when

An existing home is bought largely as it stands. Condition, the remaining term of a lease where the system uses leases, the service-charge history and the current occupier can be read. A new home bought before completion is a payment schedule against a specification. Completion can move. The finished unit can differ from the gallery. Incentives at launch, a furnished pack, a guaranteed rent for a short period, change the contract price without changing what the unit will let for once the incentive ends.

Supply arrives in groups

Developers start buildings when credit and sales allow it, so several new buildings often complete in the same district in the same years. That is a local supply event. An older street does not receive that wave. The BIS residential series often mix new and existing stock, or cover one of them, depending on the country. A national index will not say whether five towers are being handed over on one road. The district has to be read on its own.

Running costs and the first repair

A new building has no history of common costs. The fee in the sales documents is the fee before the first major repair, the first insurance renewal, or the first year of lifts and façades. An older building has that history, and it also has deferred work. Warranties for new homes, where a country provides them, are national schemes with exclusions. They are not a substitute for a survey of an existing house, and a survey is not a substitute for a warranty that does not exist.

Who the resale buyer is

The first buyer of a new unit is often buying from a developer, with a marketing budget. The second buyer is buying from a person, in competition with the developer’s next release if that release is still on sale. Existing stock is sold into whatever demand already lives in that street. Financing differs too. A lender’s valuation of a new contract and of an older comparable are not the same exercise, and a higher interest rate changes how large a mortgage either will support. The Bank of England staff research cited below is a reminder that prices and rents need not move together when rates change. A new-build price can fall while a tenant’s rent has not yet moved.