Residential Property Perspective Building a new house versus buying an existing house

Introduction

In view of the strong growth in the construction of new housing and the high sales turnover of existing houses during recent years, this article focuses on the merits of building a new house versus buying an existing one.

Building a new house

Advantages:

  • Designed and built according to owners 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 lowcost 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 (see section below on historical trends in new housing).
  • 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 (see section below on size trends in new housing), 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 (see section below on size trends in new housing).
  • 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 voetstoots 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.

Courtesy Jacques du Toit Senior Economist ABSA Bank

 

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