Real Estate New Construction and Recession

In another article, Gudrun and Tcat were examining natural disasters and rebuilding efforts. In this piece, we want to look at the impact of a recession on new construction sites and the general real estate market.

Okay. It doesn’t take a rocket scientist to figure out that a recession takes a bit of a bite out of everybody, due to the trickle through in economic trade. If you speak with anybody having anything to do with new construction, and that would mean buying or selling as well suppliers and support people, a recession gives them one heck of a headache.

So you may be wondering, how does a recession affect new construction? Well during a recession, fewer people want to either buy or sell. New construction is no surprise, very capital-intensive. Nobody wants to spend that kind of money on new construction only to have it sit there.

Of course, it can be difficult to predict when a recession is coming. So a construction project may have already been under way when the unwelcomed downturn appears, and brings his weight to the market. This can force incentives, such as cash rebates to free up some capital for the construction company.

Now, if you happen to be in the market to buy at that stage and the construction company is feeling the pinch from the unexpected recession, lucky you. You could expect to see cash rebates or free upgrades or extensions, totaling tens of thousands of Dollars.

Yes, of course, this is damaging or even eliminating the anticipated profits for the builder. For just a moment, stop and ask yourself: what would you do, if you had dozens of homes, unsold?

A builder cannot just let the homes sit and wait for the recession to go away. The good news for the buyer is all these free upgrades like double glazing or a floor covering to the house have genuine value. Perhaps even your garden gets shrubs, pavement, and not just a lawn… Many add-ons are negotiable and you have to bring them up in your negotiations. This translates to a better return on investment, when the buyer is selling out later.

Another reason a builder may offer free upgrades worth considerable real money is the fact that developments contain dozens or even hundreds of houses. Creating serious incentive to attract buyers means other prospects will see how quickly the development is filling. This becomes an exceptionally strong selling point to future prospects looking at houses in the same development. Therefore, strong incentives now can give the builder an opportunity to regain some of its losses in the development. They do this by creating desire in the area.

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