Those looking for a new home often ask: what is the better option, to build a home from scratch or to buy an existing one?

Adrian Goslett, CEO of RE/MAX of Southern Africa, says there is no right or wrong answer to this question. However, each option should be cautiously worked out from a financial point of view and carefully considered according to individual requirements.

“In the past it was considered more cost effective to build a new home, but more recently the recession and reduction of property prices coupled with increased building costs has meant that buying an existing home is now often the more cost effective option,” says Goslett.

This is backed by a report released by Statistics SA which shows that building costs have increased substantially over the past year. This if reflected in the fact that the value of building plans passed by the larger municipalities increased by 4,9% during the period January to June 2011, compared to the same period in 2010. This calculation is concluded at the current building prices. The largest increase in building costs reported was for residential buildings, which increased by R1,12 million or 8,9% for the same period.

Jacques du Toit, a senior property analyst at Absa, said that existing homes are currently 29.5% cheaper than new homes in the current market. He said that building an average home will cost in the region of R1,5 million, while the average price of an existing home with the same specifications is around the R1,1 million mark.  He attributed the gap between the building and buying cost to the significant housing price drop over the last few years, while building contractors have been unable to reduce their costs largely due to the cost of commodities such as materials and labour.

“Not every homebuyer will make the decision on whether to build or buy based purely on the cost and some still opt to build a home to their particular specifications. And although the slowdown of the market means that buyers are spoilt for choice with the large amount of existing properties for sale at fair market value, the question to build or buy is still not an easy one to answer,” says Goslett.

On the one hand, many people would like the creative control and freedom to design and build their own home. The flipside to that coin, however, is that most people have fairly limited knowledge about designing or building of a home.  There is also the risk of building being affected by other external aspects such as delays due to power outages and bad weather.  Possible petrol prices hikes will increase transport costs, which in turn will increase the cost of the building material or labour.

According to Goslett, a challenge that buyers could face is the fact that in most established areas there are very few vacant stands on which to build residential homes – if there are any at all.  He adds that while a newly built home may have the benefit of the initial low maintenance and the various guarantees that come with new workmanship, there is no guarantee on the future of a new neighbourhood and return on investment.  “Whether planning to build or buying an existing home, the location of the home and proximity to amenities is something that should always be considered,” says Goslett.

“Property should be viewed as a long term investment, so whether buying an existing home or building your own, it is always important to do the necessary research and make a decision that best suits your requirements, both now and in the future.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

Buy while interest rates are low

Now is as good a time as any to buy a home thanks to the slowdown in South Africa’s residential property price growth.

According to Mortgage Plus, as the economy recovers, property prices remain reasonable and the effect of lower interest rates is felt.

Mr AM Prinsloo, provincial sales manager at Mortgage Plus says confidence will return to the bricks and mortar investments.

Would-be home buyers and property investors with cash have an opportunity to get into the property market, he says.

Although the property market got off to a slow start in 2011, estate agents are seeing an improvement in the market.

Pam Golding Properties (PGP) report that sales are being concluded with more people purchasing homes in the more affordable category priced under R2 million.

Last month, Absa Home Loans said affordability remains key in the housing market and more buyers will be looking at smaller and affordable properties.

Carol Reynolds area principal for PGP Durban North and La Lucia says affordability remains the key driver of bond acceptance and that it is imperative to factor household running costs into the equation when looking at buyer affordability.

“Buyers who have the means to put down a sizeable deposit will be better positioned to negotiate with the banks.”

She says in general, one aims for between 15 and 20 percent deposit as banks are beginning to look more favourably on 10 percent deposits.

FNB Home Loans reports a lower rate of household sector indebtedness compared to the previous quarter.

According to the FNB Household Sector and Consumer Update Q2 2011 report, although household indebtedness has come down, there has not been an improvement in the household sector’s saving rate lately.

John Loos, FNB Home Loans property strategist says the household sector does not save enough to fully cover the depreciation of fixed assets in its possessions.

For many households, this translates to lack of money to put down for a deposit towards buying a new home while in others, this impacts on their ability to repay their mortgage loans.

For buyers who have saved money and can afford to buy, now presents a good opportunity as interest rates are at their lowest, he says.

He explains that in the past few years, estate agents surveyed pointed to a greater portion of home owners not doing full home maintenance and the number of those still maintaining their homes or doing any upgrades has declined since the boom years.

Please contact us if you require any further information or would like to apply for finance:

Complete this short form online

011.327.4489 / 0861 1111 93

morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za