- Off-plan sales down from 2016 peak
- Profile of off-plan buyers has changed
Housebuilders' 'off-plan' sales have plummeted to the lowest point since 2013 last year as landlords continued to step back from buying newly developed homes, data from Hamptons estate agency has shown.
The percentage of homes bought before they have been built, as a proportion of all home sales in England and Wales, fell to just 34 per cent in 2022, its lowest ebb since 31 per cent in 2013 and significantly down from the record high of 46 per cent in 2016, Hamptons’ analysis of Land Registry data revealed.
The long-term downward trend will present problems for listed housebuilders who are still struggling to bring their off-plan sales – also known as forward sales – figures back to 2021 levels. The rapid surge in interest rates has caused those numbers to crater while Hamptons said the figures also revealed how buy-to-let (BTL) investors' behaviour continued to change, as institutional capital muscles in on the rental sector.
Last week, Vistry (VTY) reported its forward sales had risen from its March update to £1.41bn, but it still lagged the £1.53bn in forward housebuilding sales recorded on 13 May 2022. Updates from fellow FTSE 350 housebuilders Barratt Developments (BDEV), Taylor Wimpey (TW.), and Persimmon (PSN) over the past couple of months revealed the same phenomenon: sales were rising from their winter trough, but were still down on 2022.
Hamptons said the drop in off-plan sales last year continued a trend in landlords refusing to buy new homes that began around 2016 when a 3 percentage point stamp duty surcharge for second homes was introduced. The decline in investor off-plan sales has been mirrored by a surge in owner-occupiers snapping up homes off-plan, however, this hasn't been enough to maintain sales as higher interest rates hold back potential buyers.
The rise of 'build-to-rent'
Not included in the Hamptons data is the number of off-plan sales to institutional investors or listed residential landlords such as Grainger (GRI) and PRS Reit (PRS) who, like BTL investors, buy homes off-plan in order to rent them under a model known as build-to-rent (BTR). David Fell, lead analyst at Hamptons, said BTR currently only accounted for a small percentage of off-plan sales, but this was changing as its popularity increased.
According to data from Savills, there are 79,000 completed BTR homes, a tiny fraction of the UK’s 24.2mn housing stock but a number which has soared from 4,000 10 years ago, as money pours into the nascent sector.
The rise of BTR has already helped boost Vistry’s forward sales figures. Though off-plan transactions in its general housebuilding division are down compared with 2022, off-plan sales in its partnerships division – in which it sells hundreds or thousands of uncompleted homes at a time – have leapt 50 per cent from 2022. Some of those partnership sales are for joint ventures or for-sale properties, but an increasing number of them will be to BTR institutional investors.
Fell calculated that BTR sales make up about 5 per cent of housebuilders’ forward sales, but he expected that figure to rise. Other agents who help secure deals for institutional capital have told Investors’ Chronicle that housebuilders have increased selling their stock to their clients for BTR. Should that trend continue, housebuilders might find an alternative income stream even as a prolonged period of higher interest rates causes the number of BTL investors buying off-plan to plateau.
