The cost gap between the two options is a result of sharply rising construction and land costs. It is the biggest recorded gap in almost 15 years.
Absa’s Housing Review for the fourth quarter of 2017 shows that the average price of new homes increased by 16%. As a result, a new home is built for an average of R2,02 million. This compares unfavourably with R1,39 million for buying a second-hand house.
National house price inflation for existing homes has been losing momentum since the fourth quarter of 2014. This remained fairly steady during much of 2014 and 2015. In contrast, the cost of building a new home has accelerated sharply during 2016 and 2017.
The price gap between new and second-hand
As a result, the price gap between new and existing house prices has risen sharply during the course of this year. During the third quarter of 2017, it cost about 30% cheaper to have bought an existing house than to have had a new house built.
The average building cost of new housing was up by 9,5% to an average of R7 158 per square meter in the first eleven months of 2017, compared with R6 539 per square meter in the corresponding period in 2016. In real terms, after adjustment for inflation, residential building costs increased by an average of 4,0% up to November 2017.
Cost of building materials
As the cost of building materials rise, property developers are finding it harder to market competitively priced stock. Figures show that growth in residential building plans completed grew only 0,6% in the three months ending November. This is compared to 8,15% growth for the three months ending October the previous year.
The number of new properties completed in 2017 is less than half of those completed annually between 2005 and 2007.
Deciding whether to buy or to go for renovation can be a difficult decision. Both have their pros and cons. Both can cost a lot of money and there are many pitfalls to negotiate. You can do it on your own, or you can hire an expert. The decision is yours!
Homes more than 10 years old are likely to be more spacious than new ones because steeply rising building costs. In recent years developers and architects have had to design smaller homes in the interests of affordability.
Better still, get a home inspector to do so for you. And remember, the seller must provide you with the required certificates of compliance and a seller’s disclosure.
Building a new home
Advantages of building:
When buying a home from a developer the price includes VAT. As a result transfer dutyfalls away.
You have a 5-year major structural defect warranty and a 1-year roof leak warranty. All building contractors registered with the National Home Builders Registration Council (NHBRC) must comply with this regulation.
The overall design of the house is according to your needs and taste.
Maintenance costs are low.
Disadvantages of building:
New developments and vacant stands are usually on the outskirts of major urban areas. Security could become an issue, as well as access to major arterial routes and amenities.
Costs may escalate architect and engineer fees, land excavation and land preparation costs etc.
Building projects often have time overruns.
You have little impact on the design of other constructions in the vicinity.
Stand sizes are usually smaller.
Project managing the construction of the house is a time consuming and stressful endeavour.
On the other hand, there’s nothing quite like a home that is purpose-built for your needs. But for most South Africans, the thought of building a house from scratch is more than a little overwhelming.
The good news is, with help and a lot of planning, it’s possible to build the house of your dreams.
Again, employ a home inspector to do periodic quality inspections before making progress payments to the contractor!
Investing in property
However, investors should understand that building a house is unlikely to be the cheapest option. Therefore they should either consider buying and renovating than buying a new home. Our relatively high construction costs tend to make building significantly more expensive than buying.
Wise investors ensure good value by having a property inspection or multi-unit inspection before they commit to buying investment properties.