Is it Cheaper to Build or Buy a House?

 

Is it cheaper to build or buy a house? It’s an old debate and one with an answer that changes with time and location. It is worth looking carefully at the upsides and downsides of building your own home, as opposed to buying an existing home and comparing the costs of both.

Houses are notoriously expensive, usually the biggest purchase in your lifetime; so, with cost being such a huge factor, it is important to work out exactly what it costs to build a house vs buy one.

Comparing figures: building a new home vs buying an existing home

City	Average size of a new build house (data as per state)	Total build cost (low range build cost + average land cost)	Median house value (July 2023)	Which appears cheaper?
Sydney	239.4sqm	$1,185,605	$1,333,985	Build
Melbourne	240.8sqm	$830,013	$923,881	Build
Brisbane	226.1sqm	$809,917	$819,832	Build
Adelaide	213.4sqm	$571,672	$722,793	Build
Perth	223.4sqm	$685,720	$625,969	Buy
Canberra	258.9sqm	$1,078,527	$958,950	Buy

^{Source: ABS Building Approvals (May 2023), Rider Levett Bucknall (Riders Digest 2022, Melbourne edition), CoreLogic (Hedonic Home Value Index, July 2023).}

Although these figures would not apply to every build or buy, we can see that overall, in most capital cities, it appears slightly cheaper to build a house vs buy.

Building a Home – The Pros

There are several advantages to building your own home, including:

• You can personalise every step of the way. This comes down to choosing your land and which architect and builder to work with. You can also design your own layout and decide how many bedrooms and bathrooms your family will need. The choices are never-ending, right down to the smaller fixtures and fittings.You also have a say on where you will prioritise your costs. Perhaps you would like a high-end kitchen and a smaller yard, or maybe you want a nice deck and pool and would like to make that the focus of your home. It is all completely up to you and your budget. If you compare this to buying an established home, you essentially are buying a home that someone else has built and decided on and may have existing maintenance issues.
• You may qualify for a home builder grant. Wherever there are grants on offer, they are usually available to those building a new home. This may mean at least $10,000 off your new build, depending on your state or territory. Here’s the link for NSW.
• You can avoid some stamp duty. If you are building a home, it is only necessary to pay stamp duty on the value of your land and not your house. This can mean a difference of tens of thousands of dollars in savings.
• It may be more energy-efficient to build your own home. Because of new codes of construction enforced, new homes need to be built to be more energy efficient. There are also some great new energy-efficient options when it comes to windows, doors and even solar panels. This can also save you thousands in electricity and gas bills in the years to come.

Building a Home – The Cons

It’s not all rosy when it comes to building your own home. Let’s look at the downsides:

• It takes time to build. We’ve all seen a home building show and enjoyed the thrill of seeing a room or a property come to fruition in a matter of weeks. The reality, however, is that you may need to spend extra money on rent as well as your current mortgage. It is worth spending time planning and discussing how you will get by and where you will live while your build takes place. There are often build time guarantees depending on who you build with. But regardless, you will need to factor in council approvals and even weather slowing the process down.
• You need to ensure you have a good builder. This is not necessarily a con, more of a warning to heed. Choosing a dodgy contractor may mean that some of your build may not be built well and may take more money and time to repair in the long run. It is crucial that you take your time and research to choose the best-licensed builder that you can.
• Spare a thought for your garden. Because it may take years for freshly planted trees to mature and grass to take root, you’ll need to have a little patience before you can enjoy an established garden.

Construction loans

A construction loan is a home loan specifically designed for the construction of a new home. While they usually carry higher interest rates and fees and need a bigger deposit, there are other ways in which a construction loan is handy to have.

For one thing, the money in a construction loan is released in stages, called progress payments. This helps to keep track of the build and make sure that you only need to pay for work that is finished.

You also don’t need to pay interest on a construction loan until your home is completely built.

How do construction loans work?

The way in which a construction loan works is that after each stage of building, your builder will issue an invoice. You pass that invoice onto your lender and authorise them to hand out a progress payment from your loan to the builder. After that progress payment is paid out, you will only need to pay the interest on your loan until your home is built.

When your home is finally built, you will begin to make repayments on both the principal amount and the interest. You can often opt to continue to only pay interest for up to five more years after construction, depending on your lender.

Speak to your mortgage broker to ensure you find the best loan product to suit your needs.

In conclusion

When it comes to working out whether to build or buy, the decision is not just based on how much either will cost. It really all depends on the home you want and what your priorities are. Perhaps all you need is a family home close to amenities and transport. Or maybe you value a personalised layout and handpicked fixtures and fittings.

Ultimately, the choice is yours and needs to be a decision that will align with your lifestyle and objectives. Speak to your mortgage broker today to find the best loan product to get you closer to the home of your dreams. Call Watson Mortgages on 02 4018 7505 to make an appointment with one of our experienced Mortgage Brokers today.

 

^{Disclaimer: The information provided in this fact sheet is not legal, taxation or financial planning advice. It has been prepared without considering your specific needs, objectives and personal financial situation. Before acting on this information, we recommend that you consider carefully if it is appropriate for your needs, objectives and personal financial situation. All loan products are subject to lender criteria and approval. Fees, terms and conditions apply. Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Licensing Statement: Watson Mortgages Pty Ltd Credit Representative 525053 is authorised under Australian Credit Licence 389328.}