Build, buy or renovate?

Whether you're building, buying or renovating a home, it's a challenge if you don't know what to expect. Save yourself many grey hairs by finding out exactly what you're letting yourself in for - from construction and financial perspectives.

Every cent spent on building, buying or renovating a home will probably be one of the best investments you'll ever make - if you don't over-capitalise on your property. Property experts warn that, just like any other investment, research and timing are everything if you want to maximise on the investment in your home.

There's no right or wrong answer to the question, ‘Should I build, buy or renovate?' The most important factor is the reason for wanting to do so.

Most people who choose to renovate are happy where they live, but either need more space or want to improve their property and its value. Renovating is, however, not always the more economical option if you need more space. It could easily be more expensive than building a new home or selling your existing home and buying a bigger property.

The decision to build or buy is not easy. The freedom to decide exactly how big your house will be, what shape it will take and which finishes you'll use is not only a luxury, but it's also an experience that most of us would probably like to have just once in our lives. The downside is most of us have limited building knowledge, we don't know how sound the house is going to be until well after the builders have left and the budget will runneth over, particularly if you haven't chosen your builder well.

So you need to ask yourself: is the present a good time to renovate or build? Generally, I would say this is probably a less wonderful time to build than, say, the end of 2007. Why? Because through 2008 we saw a sharp increase in building costs. This widened the gap between the average existing house price and the average cost of building a house, to a point where building cost is now estimated at 20% higher than the average existing house price.

In addition, there's still a significant amount of distressed selling. This means that buyers can still find existing bargains in established neighbourhoods. Not surprisingly, building activity is currently very weak. Developers and contractors are finding it very tough bringing competitively priced new units onto the market.

This may be the case for the rest of 2010, at least until the oversupplies of existing properties decrease and existing house prices increase considerably.

"Providing house-price inflation continues, 2011 may be a better time to build. We're not saying that one shouldn't build now, but for the time being, the existing home market still offers some good bargains, although there are fewer as the market continues to recover.

Time to make up your mind:

Building - the pros

  • You'll have control over everything that will affect you on a daily basis.
  • You'll get to learn useful things about home construction as you monitor the process, and you'll get a sense of ownership that comes only from watching your house take shape.
  • If you choose correctly, you'll have the expertise of the builder, contractors and architect to guide you.
  • If you employ professionals, they will handle the paperwork for approval with local authorities, sub contractors and suppliers.

Building - the cons

  • Be prepared for the unexpected costs that occur in most home construction projects. You will have to pay for them.
  • Building a house takes time; waiting for it to be completed can be disheartening.
  • Finding alternative accommodation during construction can be costly. (If you can't move out while you're renovating, you'll have to make peace with living on a "building site".)
  • Whenever a decision has to be made or a problem arises, you have to deal with it - daily. This can take its toll, unless you're strong-minded.

Buying - the pros

  • You get to shop around and become a critical customer.
  • You have the luxury of comparing different homes with different features until you find exactly the right combination at the right price.
  • It's a buyers' market at present, so you can generally drive a tough bargain and get the best deal possible, especially in the case of a serious seller.
  • You can take your time house hunting.
  • As for moving in, if the seller agrees, you can move in straight away and pay occupational rent until the house has been registered in your name.

Buying cons

  • If your needs are very specific, it could take quite a while to find a home that meets your criteria.
  • As you did not design the house yourself, you may never find your ‘perfect' house and have to make concessions regarding certain features.
  • Be prepared to spend additional money on updates and repairs if the property needs some work.
  • Looking for a new home and making an offer once you've found what you want can be stressful.
  • You might need to act fast or make an offer that's more than the asking price if you get stuck in a bidding war.

*John Loos is an FNB Property Strategist

Article by: John Loos - www.realestateweb.co.za