Building vs buying a home: what is cheapest?

23 June 2015

For many South Africans it’s a dream come to true to design and build their own homes to meet their individual needs, in a style that best suits them.

During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.

This is according to Bruce Swain, MD of Leapfrog Property Group, who says unfortunately, the latest data from Absa Home Loans indicates that building a new home is just becoming too expensive, especially during this period of economic uncertainty and rising electricity costs.

“We’re seeing demand for existing housing, especially in the lower end of the market, thus properties under R1.5 million, but new housing developments have become scarcer, save in a few areas, as construction costs soar,” he says.
The data from Absa reveals that the average price gap between existing homes and new homes was a mere 1%, or R9 500, in 2007, based on a house size of 80sqm to 400sqm. In 2014 that gap had increased to 30.5%, or R458 000.

Below is the average price gap between new and existing houses from 2006 to 2014:

2014: 30.5% or R458 000
2013: 35.1% or R615 000
2012: 34.5%or R553 000
2011: 31.6% or R478 000
2010: 27.5% or R386 000
2009: 20.5% or R256 100
2008: 11.9%or R128 400
2007: 1% or R9 500
2006: 2% or R16 700

During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.
Jacques du Toit, property analyst for Absa Home Loans, agrees that this disparity is caused by escalating building costs, which he says have continued to increase faster than consumer price inflation in recent years.
Where to from here?

Swain says while prohibitive construction costs are good news for sellers in the short term, as more prospective homeowners will look to buy rather than build, the situation could eventually put too much pressure on the built market where buyers will struggle to find a home to buy, and the cost of existing homes will become too high.

“This situation can’t go on forever as we’re a growing nation that will need more property development, and it is my belief that government and the private sector will need to join hands to make this more financially viable for new homeowners,” he says.

Written by: Property24 author | Date Added: 23 Jun 2015

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