The clever money is on buying, not building

03 February 2016

The latest figures on house prices show that you may be better off buying an existing house rather than a new one.

The Absa Housing Review for the fourth quarter of 2015 reports that the average nominal price of a new house was R1 713 800 in the third quarter of the year compared to R1 339 600 for an existing house.

That is a nearly 20% difference.

It would be easy to take this as a sign that building is more expensive, but it is not always a straight-forward calculation.

Absa Home Loans Property Analyst, Jacques du Toit says that the lower price could be related to sellers being more amenable to negotiating on the selling price of their home. Doing the same with a property developer or a builder is a completely different prospect.

One of the big cost factors in a property’s price is the actual land, which would have been cheaper for a house that was built 10 or 20 years ago.

Jacques says that it is also easy to be caught off guard by the eventual building cost being higher than as originally anticipated. It is common for costs to overrun the budget, which can place an unexpected burden on your budget.

The Housing Review also points out that the cost of building a house was 5,9% more expensive in the third quarter of 2015 than a year previously – which is slightly higher than 5,6% increase in nominal house prices.

The good news is that this 5,9% is lower than the 9,6% in the first quarter of the year.

But if you’re unable to resist the temptation to build your dream house, Jacques suggests that it is still important to consider the location if you want your new home to appreciate in value.

More attractive and in-demand suburbs should deliver you growth in your property value in relation to its surroundings. That 20% premium you’re paying to build a home that meets your lifestyle could therefore be money well spent.

Disclaimer: The advice contained on this blog is for general purposes only and does not take into account individual circumstances, objectives or financial needs. Accordingly, readers are advised to seek appropriate advice from licensed professionals prior to making any investment, or taking up a financial product or service.