Expect to spend 30% more on building a house than buying one

Building a new house from scratch will set you back by about R629 500 more than buying an existing one, new data released by FNB and Absa shows

If you have ambitions of building your dream home from scratch, data released by banks might make you reconsider that decision.

The cost gap between the two options – which is the biggest recorded gap in almost 14 years – is as a result of sharply rising building and land costs.

Absa’s Housing Review for the fourth quarter of 2016 shows that the average price of new homes in the middle and luxury market increased by 16,1% to an average of R2,02 million compared to R1,39 million for a second-hand house.

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“National house price inflation for existing homes has been losing momentum since the fourth quarter of 2014. In contrast, the cost of building a new home, which remained fairly steady during much of 2014 and 2015, has accelerated sharply during the first three quarters of 2016,” according to the review.

“As a result, the price gap between new and existing house prices has risen sharply during the course of this year. During the third quarter, it cost about R629 500 or 31,2% cheaper to have bought an existing house than to have had a new house built.”

FNB property strategist John Loos says that as the cost of building materials rise, residential property developers are finding it harder to bring competitively priced stock to the market, and it’s reflected in the figures that show that growth in residential building plans completed grew only 0,6% in the three months ending November, compared to 8,15% growth for the three months ending October the previous year.

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The number of new properties completed in the third quarter of 2016 was half of those completed during the building boom between 2005 and 2007.

“Sometimes building costs are determined by home values too. If existing home prices in the Western Cape were a lot higher than somewhere else, you’d probably find that the building sector could charge more for building a new home than where properties are a lot cheaper,” Loos was quoted saying in a Moneyweb report.