Please note that you are using an outdated version of Internet Explorer which is not compatible with some elements of the site. We strongly urge you to update to a newer version for optimal browsing experience.

Building vs buying a home: what is cheapest?

19 Jun 2015

For many South Africans it’s a dream come to true to design and build their own homes to meet their individual needs, in a style that best suits them.

During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.

This is according to Bruce Swain, MD of Leapfrog Property Group, who says unfortunately, the latest data from Absa Home Loans indicates that building a new home is just becoming too expensive, especially during this period of economic uncertainty and rising electricity costs.

“We’re seeing demand for existing housing, especially in the lower end of the market, thus properties under R1.5 million, but new housing developments have become scarcer, save in a few areas, as construction costs soar,” he says. 

The data from Absa reveals that the average price gap between existing homes and new homes was a mere 1%, or R9 500, in 2007, based on a house size of 80sqm to 400sqm. In 2014 that gap had increased to 30.5%, or R458 000.

Below is the average price gap between new and existing houses from 2006 to 2014:

2014: 30.5% or R458 000

2013: 35.1% or R615 000

2012: 34.5%or R553 000

2011: 31.6% or R478 000

2010: 27.5% or R386 000

2009: 20.5% or R256 100

2008: 11.9%or R128 400

2007: 1% or R9 500

2006: 2% or R16 700

During the first quarter of 2015, existing house prices rose by 7.2% year-on-year to R1 291 300, while the cost of building a new home rose by 3.9% to R1 869 400, making it R578 100 more expensive to build than to buy, says Swain.

Jacques du Toit, property analyst for Absa Home Loans, agrees that this disparity is caused by escalating building costs, which he says have continued to increase faster than consumer price inflation in recent years.

Where to from here?

Swain says while prohibitive construction costs are good news for sellers in the short term, as more prospective homeowners will look to buy rather than build, the situation could eventually put too much pressure on the built market where buyers will struggle to find a home to buy, and the cost of existing homes will become too high.

“This situation can’t go on forever as we’re a growing nation that will need more property development, and it is my belief that government and the private sector will need to join hands to make this more financially viable for new homeowners,” he says.

Print Print
Top Articles
For wealthy South Africans an investment from $500k is often less than the cost of a second property, and with this minimum amount set to rise, the rush is on...

Those hoping to sell in the current market should be patient, but pricing your property right and working with a good agent can speed things up. Here's what to expect...

With rentals so high in Cape Town’s prime coastal strip, buying property often makes more financial sense than renting, with good buy-to-let opportunities for investors...

Loading

Your browser is out of date!

It looks like you are using an outdated version of Internet Explorer.

If you are using Internet Explorer 8 or higher, please verify that your Internet Explorer compatibility view settings are not enabled.

For the best browsing experience, update to the latest Version of Internet Explorer or try out Google Chrome or Mozilla Firefox.


Please contact our Property24 Support Team for further assistance. Tel. +27 (0)861 111 724