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Investors no longer dominating off-plan sales

Investors made up one in five (21%) off-plan purchases last year – signalling that owner-occupiers are now facing more competition from one another, Hamptons research shows.

In comparison some 70% of off-plan purchases were to investors in 2015, before the government started unveiling measures designed to curb buy-to-let investment.

Overall a third (34%) of UK homes in England and Wales were sold before they were built in 2022, down from a peak of 46% in 2016.

David Fell, lead analyst at Hamptons, 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 6-12 months. The majority, however, still want to wait to see a finished product.

“Slowing rates of price growth have also reduced the incentive for some buyers to get in early. A decade ago, investors buying well in advance of completion often saw the value of their new home rise 20-40% between exchange and completion. But as price growth has slowed, buyers have in general become less willing to commit to purchases years in advance of completion.

“Overall, the continued slowdown in the number of new homes sold off-plan coupled with the end of Help to Buy is hitting most housebuilder’s bottom lines. Slowing sales rates mean that some developers are slowing down the pace of work in order to reduce their risk.

“Without a relaunch of Help to Buy or replacement with a similar scheme, in the short term it’s likely to mean far fewer homes will be built in 2023 than there have been over the last couple of years.”

Traditionally, flats made up the bulk of off-plan sales. They offered the highest yields for investors buying into developments two or three years in advance of completion. However, fewer investors have meant fewer off-plan flat sales.

Back in 2007, flats accounted for 71% of all new homes sold off-plan, a figure which fell to 53% by 2016. By 2022, that share dropped to just 38% on the back of a more aggressive tax environment for investors. This also reflects the Covid-induced shift where owner-occupiers are looking for houses with more indoor and outdoor space.

The shift away from investors coupled with a change in where they were buying means that for the first time since at least 2007, new terraced houses (46%) have been more likely to sell off-plan than flats (44%). And with flats making up over 90% of new homes in London, for the first time in at least 15 years, the capital didn’t account for the largest proportion of new homes sold off-plan.

Despite owner-occupiers making up a growing proportion of off-plan purchases, developments in higher yielding areas which often cater exclusively to investors continue to see off-plan sales hold up most strongly since 2016.

Around 200 developments accounted for around half of off-plan sales nationally. The proportion of new homes sold off-plan in areas where average buy-to-let yields sat above 8% increased year-on-year, while a record 50% of new homes sold in advance of completion were in places where average yields surpassed 10%.

This means off-plan sales in Northern England, where landlords have headed in increasing numbers for yields which work with higher interest rates, have remained most resilient. But off-plan sales have also held up more strongly in higher yielding parts of the South. As a result, flats outside London are now more likely to be sold off-plan (44%) than those in the capital (43%). London offers investors the lowest average yields in England and Wales.