|
 With
the slowdown of South Africa’s property industry, the glut of available
stock is good news for buyers and there are plenty of bargains for those
who are still in the market. This is great news for people who cannot
yet afford their ‘dream house’ — they can now buy something
in a lower price range and renovate to fit their criteria, rather than
the costly and stressful exercise of building what they want.
Until recently, building a new home was considered more cost effective
than buying and the advantages of the buyer being able to choose his
own designs and finishes added to the appeal. Building stats for the
third quarter of 2007 indicated that the rate of building material cost
increases had slowed for the fourth consecutive quarter. While this
slowdown doubtless contributed to the perception that it was cheaper
to build, examples given in the media often failed to take account of
the varying cost of residential land.
“Buying an existing property and renovating it to your liking
still offers a far better return on your investment than building from
scratch,” says Mike Bester, CEO of Realty1 International Property
Group. “In addition, it’s much less stressful than dealing
with the problems associated with selecting a reliable building contractor
in an industry that is suffering from the same shortage of skills as
many others in the country right now.”
The construction cost of an average house is around R4800/m²
A recent report in FNB’s Commercial Property Finance Residential
Building Cost Index puts the construction cost of an average house currently
at around R4800/m², but this figure is considered to be exceptionally
conservative and the reality is closer to R6000/m² for basic finishes
and anywhere from R10 000/m² upwards for more luxury.
With the power crisis further hampering the building of new residential
units — both freehold and sectional title — the cost of building
is pushed up further by having to budget for the installation of alternative
power supplies.
There are some definite advantages to buying an established home, says
Bester. “The first and most obvious factor is location. Very few
established suburbs have residential plots available for sale and those
that can be found are usually expensive. In a newer suburb, the buyer
runs the risk of building in an area that later might not meet his criteria
in terms of amenities and type of homeowners.”
And then there’s the garden. “’Second-hand’ properties
usually have established gardens,” says Bester, “while new
properties require landscaping from scratch.”
Another benefit of buying an existing property is that structure, fittings
and finishes can be physically inspected for quality, defects and poor
workmanship before buying. The neighbourhood and amenities are established
and the plots are generally also larger than in newly developed areas.
However, the buyer will be responsible for transfer duties, renovations
could be costly in the long term and the ever-present ‘voetstoots’
clause could result in problems for those buyers who don’t have
professional home inspections carried out.
The builder of a new home, on the other hand, might benefit from low
initial maintenance, built-in transfer fees and the various guarantees
that come with new workmanship. Nevertheless, these advantages can be
outweighed by construction delays, uncertainty about the future of the
new neighbourhood and the difficulty of obtaining finance.
Obtaining a building loan is certainly more difficult. Independent
property economist Francois Viruly says the banking sector is very cautious
about funding people who build their own homes. The land will be formally
registered in the buyer’s name only once the full purchase price
is paid. Standard Bank’s home loans division concurred, saying
that “home builders are not generally accepted candidates for home
loans and will only be considered under exceptional circumstances.”
If a bond is granted, the bank will authorise the loan to be used for
the construction of a house only if the National Home Builders Registration
Council (NHBRC) has approved the building contractor, in order to ensure
that quality standards are maintained.
Higher transport costs could affect the delivery of bricks and cement
And finally, the costs involved can escalate out of control depending
on issues such as bad weather, power outages and other potential problems.
Unexpected material price increases can also play a part — higher
transport costs as a result of recent petrol hikes could affect the
delivery of bricks and cement and this is not a cost the builder is
likely to carry.
“The old adage,” says Bester, “says budget for your
project and then add 30 percent to cover unexpected costs and price
increases.”
According to Sanlam’s Money Matters newsletter, at the end of
the day it’s a financial decision. Potential builders should compare
the cost of the house they want to build with the cost of existing houses
of similar size and finish on the market. A good compromise is to buy
a house that doesn’t quite fit your requirements and over time
alter or renovate according to your financial situation.
“This enables you to buy a house that you can afford now, even
if the interest rate goes up again, without giving up on your dream
house,” says Bester.
|
