To Build, Buy Off-Plan or Buy an Existing Property – Which is Most Cost-Effective?

When it comes to finding a new home, weighing up whether to buy an existing property or build a new one can be a daunting decision to make.

“There are numerous factors to consider including location, customisation options, and long-term value,” explains Grant Smee, Managing Director of Only Realty Group. “However, in a high interest rate environment and with the rising cost of living, one of the most important considerations for many people will be which option is more cost-effective.”

Smee adds that it’s important to analyse the costs involved in both buying and building a home to help you make an informed choice that aligns with your budget and needs. “For instance, many people are opting to buy off-plan in an existing development. This way, you get a new build and save on transfer costs.”

Pros and Cons of Each Option

 

Smee breaks down the pros and cons of building vs buying as follows:

 

Pros of Building

–          The ability to design a new home to your exact specifications and preferences.

–          Reduced maintenance and energy costs due to newer fittings.

–          Tax benefits, such as the ability to claim depreciation after a certain number of years.

–          The feeling of knowing that your home is unique and will stand for future generations.

 

Cons of Building

 

–          Waiting months for the home to be completed.

–          The high probability of costly delays and complications.

–          The risk of unreliable contractors.

–          Unforeseen costs  – here we recommend factoring in an additional 20%.

 

Pros of Buying an Existing Home

 

–          A far quicker process from purchase to move-in date, usually around three months.

–          An existing home is more likely to be better located than vacant land, meaning proximity to schools, grocery stores or other conveniences.

–          A new home may already have luxury add-ons, such as a pool or a designer kitchen, courtesy of the previous owner.

 

Cons of Buying an Existing Home

 

–          You may need to renovate or repair, especially if the home is older.

–          You’ll have to pay expensive bond registration and transfer costs, including transfer duty and conveyancing attorney fees.

–          You purchase a home voetstoots which means that any latent defects must be identified beforehand.

 

Buying Off-Plan Offers the Best of Both Worlds

 

“For those who aren’t keen on the idea of purchasing a ‘lived-in’ home but who want to skip the hassle of managing their own building project, buying off-plan provides a good compromise,” says Smee.

Buying ‘off-plan’ means buying a property before it has been built and instead basing your decision off the developer’s vision and architect’s drawing. Benefits include no transfer duty, living within a community and all the modern finishes and energy efficiency that comes with a new-built home.

 

Which option is the most cost-effective?

 

According to data from Absa, building a new home from scratch is estimated to be 20-30% more expensive, on average, than buying an existing property. Procompare estimates the average cost per square meter to build a middle-class freestanding residential house at R12 920.

Smee comments, “One must also consider the cost of renting a home while waiting for the new one to be built, as well as the possibility of complications and costly delays throughout the construction process, which can exceed the budget. The general rule of thumb is to factor in an additional 20% for breakages, delays, cost escalations, etc.” However, building a home does offer upfront savings as it eliminates the need to pay transfer duty.

The cost of purchasing an existing home varies based on location and property type, with additional standard costs including bond registration and transfer costs, transfer duties, a deposit, potential repairs and maintenance, and home insurance.

“Buying a home provides the advantage of having a clearer understanding of the total cost from the start, enabling better budgeting,” adds Smee.

Finally, while buying off-plan does not require transfer duty, buyers will still need to pay VAT. “However, this still works out to less tax than you would pay on an existing property, because a new development property is registered at the minus-VAT value,” he adds.

Ultimately, it’s currently cheaper to buy

Considering all these factors, Smee believes that due to slow House Price Inflation (HPI), buying a home, be it off-plan or from an existing owner, is ultimately more cost-effective than building one in the current climate.

FNB’s June Property Barometer shows a year-on-year HPI growth of only 1.9%, and data from ooba Home Loans indicates that HPI has slowed in all price brackets except the lower price band (<R1 million), which has experienced 7% growth as of May 2023.

“We are in a prolonged Buyer’s Market where those with available funds can take advantage of well-priced homes. However, the decision of whether to build or buy ultimately is an emotional decision based on your life stage, budget, and timeline of when you need to find new housing,” he concludes.