Do resales and new homes compete for the same buyers?

A recent report on new home inventories in Spain by valuations company Tinsa mulled over the question of competition between new and resale homes. Are they competing for the same buyers, and why do house-hunters choose one over the other?

The decision to buy a home is a complex one, said Tinsa, with many factors that determine demand for property, such as location, size, quality, amenities, design, price, and so on. It’s not a straight fight like Coke vs. Pepsi.

Nevertheless, many buyers consider both options, so resale and new home vendors are competing for the same buyers on some level. So what influences buying decisions to choose one above the other?

Tinsa came up with the following factors:

• Good quality resales are like semi-new homes, if they don’t need refurbishment. They clearly compete with new homes, and then other factors like location become critical.
• When it comes to sales off-plan, some buyers are put off by development risk. Why take the risk of buying off-plan if you can buy semi-new key in hand?
• New build construction quality has to be good enough to differentiate it and add value compared to the option of buying a resale and refurbishing it.
• On the other hand, new developments often offer features like common areas with gardens, pools, and sports facilities, that resales can’t match.
• Built but never sold “new” homes are a special case. There are hundreds of thousands of these homes on the market, many of them finished years ago. They may have never been occupied, but buyers don’t see them as new.
• Given the problems getting finance, many buyers are driven to the lowest cost option, which often means a resale they hope to refurbish overtime, deferring the cost into the future.
• Even when buyers would prefer a new home, they often can’t find what they want from what’s on offer in Spain today. I certainly agree with Tinsa about that; there are very few new projects underway, and much of the stock left over from the boom is unattractive by today’s standards.
• Deserted new developments put off buyers, who worry about shouldering high costs and community fees if there aren’t enough owners to share the burden. Buyers also prefer new developments with a community buzz.
• In many cases, private vendors can drop their prices further than developers or banks, who have loans and losses to consider.
• On the other hand, banks now own most of the new home inventory for sale, and also control the mortgage taps. They can use their control over mortgage financing to steer demand towards their product, even when over-priced compared to resales. In many cases, house-hunters have no option but to buy whatever they can finance, which often means a bank repossession, even if it is more expensive than a resale.

Tinsa say that they found new build and resale in direct competition in 73% of the territory they analysed.