Build or Buy?

Private Property South Africa
Jacques du Toit

Jacques du Toit, Senior Property Economist of the Absa Group, considers the advantages and disadvantages of building or buying a house.

This is the second article in a series of three, which looks at building a new

house versus buying an existing house. In the previous issue the historical

trends with regard to new and existing housing in South Africa were analysed,

focusing in on various indicators such as building statistics, building costs,

size trends and price developments over the years.

This article outlines the various advantages and disadvantages to be considered

when building or buying a house.

Building a new house

Advantages:

  • Designed and built according to owner's specific needs and preferences.

  • Own choice of fittings and finishes.

  • New and modern fittings and finishes.

  • Low initial maintenance.

  • Modern architectural design in line with the latest trends in

    homebuilding.

  • The positioning of the house, garden, pool, lapa, paving and other

    structures on the stand, taking into account wind directions and personal

    preferences.

  • Housing in the immediate area may also be new, modern and of the same

    architectural design, which may create a feeling of coherence in the

    neighbourhood.

  • A one-year roof leak warranty from a building contractor registered with

    the National Home Builders Registration Council (NHBRC).

  • A five-year major structural defect warranty from a building contractor

    registered with the NHBRC.

  • When buying from a developer, value-added tax (VAT) and transfer duty

    are normally included in the price.

Disadvantages:

  • Uncertainty about the quality of workmanship and material at the time of

    contracting.

  • Uncertainty about the duration of construction and final date of

    delivery owing to possible weather, material, equipment and labour

    disruptions.

  • Location may be a disadvantage as many new developments and vacant plots

    are on the outskirts of the major urban areas, which often is the only

    location where suitable land may be available. These areas may be far from

    places of work, shopping centres, public transport and schools. Traffic

    congestion and time spent on the road may be regarded as a drawback in this

    regard. Security in remote areas may also be a concern, which may lead to

    higher-than-normal insurance premiums.

  • The future development of major arterial routes, adding to levels of

    noise pollution and the development of low-cost housing or the formation of

    informal settlements on vacant land in the near vicinity may cause property

    values to stagnate or even decline.

  • Relatively small stand sizes.

  • If it is a new area, vacant stands in the vicinity may create a security

    risk. There may also be uncertainty about the type, design and size of

    housing that will be erected on these stands, which may influence property

    values. Aspects such as privacy and views may be compromised by the building

    of a new house and other structures on adjacent stands.

  • Additional expenses with regard to services provided by an architect or

    engineer, and land preparation and excavation, with unforeseen ground

    formations, need to be taken into account before the start of construction.

  • Banks are reluctant to provide finance for owner-built housing and

    insist on the use of an NHBRC-registered building contractor.

Buying an existing house

Advantages:

  • The structure, fittings and finishes can be physically inspected for

    quality, defects and poor workmanship before buying.

  • Expert opinion is available if there is uncertainty about the structural

    aspects of a property.

  • Renovating may be worthwhile if the property can be bought at a

    reasonable price.

  • If the property is in an older, established neighbourhood, it may be

    near major arterial routes and amenities such as central business districts,

    shopping centres, schools, places of work and public transport.

  • There is less chance of stands still being vacant in the area, which is

    an advantage with regard to security and the level of insurance premiums.

  • Certainty about factors such as privacy and views, as well as the type,

    size, age and condition of other properties in the neighbourhood, which may

    have an influence on current and future property values.

  • The average land area of older properties is larger than that of

    newly-built properties, which is a positive factor for people wanting

    sufficient space for their children to play or wishing to add on to existing

    structures.

  • The average total building area of older houses, including the average

    size per room, tends to be larger than in the case of newer houses.

  • The seller of an existing property is usually obliged to provide the

    buyer with an electrical compliance certificate. The seller normally pays

    for the cost of any repairs to the electrical installation.

Disadvantages:

  • An existing property is sold voetstoets without a warranty.

  • The price of an existing house excludes transfer duty payable to the

    state. Although transfer duty rates have been substantially cut in recent

    years, transfer duty may still add up to a sizable sum of money, depending

    on the value of a property. Currently, in the case of an individual, no

    transfer duty is payable on a property priced at up to R500 000, whereas, in

    the case of a R2 000 000 property, transfer duty of R105 000 will be

    payable.

  • Architectural design of the house, fittings, finishes and other

    structures may not be in line with the latest fashion trends and personal

    preferences.

  • The positioning of structures on the stand may not be optimal with

    regard to wind directions, or not be according to personal preferences.

  • Visible wear and tear may require major repairs to or total replacement

    of fittings and finishes.

  • Renovations may prove costly.

  • Uncertainty about the condition of security, plumbing, sewage, pool,

    irrigation, and gate and garage door automation systems, which may break

    down unexpectedly, cause a security risk, and which may be expensive,

    disruptive and time-consuming to repair or replace.

  • Owing to the age of fittings, finishes and the abovementioned systems,

    running costs may be high owing to frequent maintenance.

  • An overgrown garden may have to be cleaned out and the rubble removed,

    with the possibility of having to establish a new garden and irrigation

    system from scratch, which may have huge cost implications.

  • Old, dilapidated and deteriorating properties in the area may have a

    negative effect on the current level of and future growth in property

    values.

The next article will focus on the various aspects that should be kept in

mind when building a new house or buying an existing house.

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