By Kura Chihota
My near and dear friends D + I are looking for property in the northern suburbs of the great City of Johannesburg. Dutifully they visit show days and are looking for the gem that makes their heart sing and where they can raise their lovely family. One wants to build, the other wants to buy. Who is right?
Build – Pro’s and Cons
Building you can design EXACTLY what you want…down to the walk in shoe closet for the girls and walk in beer fridge for the guys (check here if you don’t know what I am talking about). You can build an incremental house ie. you can build 2 bedrooms now and add on as the family grows, so stagger your investment. You can pick your contractor and know what quality the property is built to.
You are really at the mercy of your contractor when you press that button and the money is flowing. Banks lend less to build than they would to buy a house of the same value. Typically a building loan is 60% of the construction cost vs you could buy a completed house for 80%/90% dare I say 100% finance. Cost does not equal value. You could lose money as a house built for a million doesn’t mean it would sell to someone else for a million.
Buying existing – Pro’s and Con’s
WYSIWYG – you can see and feel the finishes, there is no risk of what you ordered not equalling what you get when you sign a building contract. You can get utility for your money almost immediately. If you buy the house you can move in straight away (by agreement) and don’t have the issue like when you build of where do you stay in the interim before your house is habitable. You can raise more finance for the purchase price.
The house as it stands may involve some compromise from what you were looking for. The perfect kitchen might not be matched with the right size bathroom for example. The reception areas may be too large and bedrooms too small for another example. Latent defects (and undisclosed)may lurk under the surface and bite you HARD in the bum. In prime areas, you may be paying a premium to buy vs the cost of building. A Summercon apartment sells at about R 14 000/m2 and cost probably R 11 000/m2 to build. When you get into Hyde Park or Bryanston rates of R 20 000/m2 and more purchase price tend to be more pricey than it would be build a similar structure.
So what advice do I give our friends D+I?
Property Markets always see-saw between its cheaper to build vs buy. The current situation is that property prices for existing homes are attractive and the risks associated with building are high. The economist tell us “Replacement costs for existing stock are higher than the depreciated cost of the property”…..so in English, that means you can buy for less than you can build…for now.
On this one, I am with the the partner who suggests to buy vs build.
By: Kura Chihota-Property Strategist